Pension fund: UPA pushes for investment upto 5 per cent in equities

The UPA government is pushing for allowing investment upto 5 per cent of the money collected under government-operated pension funds in equity markets...

The UPA government is pushing for allowing investment upto 5 per cent of the money collected under government-operated pension funds in equity markets and up to 10 per cent in private sector debt instruments.

While outlining investment options proposed for PF subscribers under the New Pension System once the Pension Fund Regulatory & Development Authority is in place, the Finance Ministry has proposed that until then, government pension funds be operated on the same guidelines available for non-government pension funds.

‘‘Pending passage of the PFRDA Bill and notification of regulations in respect of investment choices detailed above, the view of this Department (of Economic Affairs) and PFRDA was that the ‘pension contributions be invested in accordance with the investment pattern prescribed by the Ministry of Finance for non-government provident funds, states the agenda paper for tomorrow’s meeting with state chief ministers and finance ministers. Consultation on the issue, including the PFRDA Bill, is being held with state governments “before the investment arrangement is finalised,” it added.

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In January 2005, the government allowed non-government provident funds to invest up to 5 per cent in shares of companies that have an investment grade debt rating from at least two credit rating agencies. It also allowed investment of 25 per cent in Central government securities, 15 per cent in state securities, 25 per cent in corporate and financial institution bonds or three-year term deposits and 30 per cent in either of the above three as decided by the trustees.

The trustees were given the option to invest up to one-third of the 30-per cent lot in private sector debt instruments that had investment grade rating from at least two credit rating agencies.

The agenda papers said that pension accumulations from new recruits in Central government after the NPS came into being from January 2004, was being kept in the Public Account and “the government is giving a fixed annual return of 8 percent on such funds out of its budgetary resources”.

There is no reference in the papers for providing an assured return to the subscribers once the new investment pattern is implemented. Prime Minister Manmohan Singh, who is to chair the conference, is opposed to offering an assured return if pension funds are deployed in equity markets.

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The Left, however, wants that investment in equities market be allowed only with assured returns. As for the four investment options, the agenda papers say that “regulations under the PFRDA Bill, including those relating to investment options under the NPS can be finalised by the PFRDA after the passage of the bill”.

The pension reforms have become necessary as the liabilities of the Centre and states were expected to cross Rs 100,000 crore by 2009-10. Besides the Centre, 17 states have introduced defined contribution pension systems modelled on the NPS for their new recruits.