New Delhi: After a delay of nearly a decade, Parliament on Friday passed a key economic reforms legislation, the Pension Bill, that aims to create a regulator for the sector and allows at least 26 percent FDI.
The Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011, was passed in the Rajya Sabha with 115 MPs voting in favour and 25 against including members form Left parties and TMC. The bill was passed in the Lok Sabha on September 4.
Replying to the debate in Rajya Sabha, Finance Minister P Chidambaram said, "Some of them have legitimate concerns, which we have to address. The bill has travelled for nine years. Let us give the bill the honour that it deserves and pass it."
The bill would make the Pension Fund Regulatory and Development Authority a statutory authority, unlike its present non-statutory status, he said.
The bill provides subscribers a wide choice to invest their funds including for assured returns by opting for Government Bonds as well as in other funds depending on their capacity to take risk, a provision that came from opponents of the legislation.
It pegs the FDI in pension sector at 26 percent or such percentage as may be approved for the insurance sector, which ever is higher.
Presently, saving for retirement by people is very low in the country. The New Pension System (NPS) aims to promote "saving while you earn" especially for retirement and is mainly for those who have a regular income, Chidambaram said.
He said government had accepted all but one of the recommendations of the Standing Committee on the subject.
On security of funds and returns, he said, "There is enough structure in place in NPS that funds will be managed well and safely. NPS gives better returns than EPS. The returns are more than government bonds. Returns are quite adequate."
The Pension Bill has been hanging fire since 2005 when it was first introduced in Parliament. It was reintroduced in 2011.
Chidambaram said the current system is unsecured. Hence, it was necessary to make the Pension Fund Regulatory and Development Authority (PFRDA) a statutory authority as it is managing the corpus of Rs 35,000 crore belonging to 52.83 lakh subscribers including those of 26 state governments.
"...Rs 35,000 crore should not be used by unstatutory authority...All this bill does is to make non-statutory authority a statutory authority," he said, adding the authority will have powers to penalise.
PFRDA was established by the government in August, 2003.
On members' suggestion to bring down the employee's annual contribution from Rs 6,000, he said, "This is not a large amount. Given the current salary and possibility 7th pay commission in two years, saving of Rs 500 per month is feasible."
He also clarified that if a government employee dies prematurely, his family would get the pension benefits that prevailed prior to 2004.
On a member's suggestion to allow investment of funds in long term 30-40 years bonds, Chidambaram said, "Bond market in India is not well developed. We have bonds for 10 years and 20 years and not beyond this. We will develop the market. I sincerely hope the day will come soon."
On giving tax exemption, he said he will not encourage any law dealing with tax other than the Income Tax Act. He asked the member to wait till Direct Tax Code comes into effect.
According to the bill, there is an incentive for subscribers to join the New Pension Scheme (NPS) as there is provision for withdrawals for limited purposes from Tier-I pension account.
The subscriber seeking minimum assured returns would be allowed to opt for investing funds in such scheme providing minimum assured returns as may be notified by the Authority.
The bill was referred to the Standing Committee twice -- in 2005 and 2011.
The NPS has been made mandatory for all the central government employees (except armed forces) entering service with effect from January 1, 2004. It has been launched for all citizens including unorganised sector workers, on voluntary basis, from May, 2009.
Earlier, participating in the debate on the bill, members expressed apprehensions over the safety of employees' money parked in various pension funds and sought minimum pension for all beneficiaries.
Supporting the Bill, Piyush Goyal (BJP) demanded from the Finance Minister that a minimum pension be assured to the beneficiaries of the scheme.
The demand was supported by Congress and BSP members, while the CPI-M opposed the Bill in the current form saying it "seeks to retire" the concept of pension as an assured source of survival when people are not productive and termed it as a "great betrayal" with the workers.
Goyal said government must ensure that benefits enjoyed under old scheme are continued.
Sukhendu Sekhar Roy (TMC) opposed the bill saying the "draconian bill is the one for promoting old age income insecurity" and will take away the social security of millions of people in the country.
Naresh Agrawal (SP) said the bill was anti-poor and pro-capitalist.
He said government should guarantee minimum pension clauses in the bill as such a social security scheme should not be left to the vagaries of the stock market.
Tapan Kumar Sen (CPI-M) said the new bill "cruelly strips the basic concept of pension" as an assured return and social security and "seeks to retire" the concept of pension as an assured source of survival, when people are not productive.
He had a dig at the Prime Minister over his speech in Parliament a few days back highlighting the need for difficult reforms.
Noting that the Prime Minister maintained that cutting subsidies and pension reforms are two difficult reforms Sen said, "Please apply all your wisdom and exercise to try these difficult reforms on the corporate sector, the beneficiary of those easy reforms days for last two decades."
He said that the Prime Minister should ask the corporate sector to pay their unpaid direct and corporate taxes, which run into approximately Rs 5 lakh crore.
"Please spare the workers, who are creating the GDP for the country. They owe that much compensation," he said.
Shashi Bhusan Behera (BJD) said opening of the sector to FDI is creating doubt in the minds of subscribers and asked the government to give "full guarantee" for returns.
Yogendra P Trivedi (NCP) favoured regulator monitoring of funds, inclusion of experts on investment panel and tax-exemption on withdrawal of money.
M P Achutan (CPI) opposed the bill saying the government is giving pension funds in the hands of foreign investors.
He said government should give an assurance that minimum pension on last drawn salary will be given to employees.
Prakash Javedkar (BJP) said the government is reducing its liability and responsibility by bringing this bill.
Bhalchandra Mungekar (Cong) suggested bringing down of annual contribution of a member from Rs 6,000 to Rs 2,000 so that everyone can join this scheme.
Mungekar said government should ensure that foreign investors entering this sector have sound track record.
Ram Kripal Yadav (RJD) asked the government to cover farmers and families living below poverty line (BPL) under the bill.
Kusum Rai (BJP) suggested steps to create family pension.
Veer Singh (BSP) said pension is not like giving alms but it is a matter of right.
R C Khuntia (Cong) demanded a minimum guarantee for the subscribers and inclusion of workers' representative in the Pension Fund Regulatory Development Authority.
N K Singh (JD-U), T M Selvaganapathy (DMK) and N Balaganga (AIADMK) also spoke.