After a decade of waiting, Pension Fund Regulatory and Development Authority Bill has finally been passed by the Lok Sabha. Hopefully, the passage in the upper house will follow soon. Recently, we’ve heard a lot about the various reforms that are being ‘kick started’. While some of them--like the Land Bill--are more in the nature of the UPA-2’s parting kicks to the country, the 2011 bill is different. The government has sold this as one of the crucial reform measures that it has been pushing. However, everything that the bill contains has already been implemented and the bill just changes the legal status of the PFRDA authority.
The change of the legal status from a body set up by executive fiat to a statutory one appointed by parliament is necessary, but does not change the on-ground operational status of the National Pension System (NPS).
Officially, the salient features of the bill are as follows:
- Statutory powers to the Pension Authority to act as a regulator.
- The Pension Bill allows subscribers to invest in stock markets with a cap.
- Allows subscribers to invest in stock markets with a cap.
- Bill will give subscribers individual pension accounts.
- Subscribers will be able to choose fund managers and schemes.
- Bill provides old age income security for government employees.
- Income security plan optional for the unorganised sector.
- Investment risk will be entirely borne by subscribers.
- Subscribers won't be exposed to risk of government default.
For government employees whose pensions are governed by the NPS, the last two points are the crucial ones. The last one is a clever way of deflecting attention from the fact that the government doesn’t guarantee pension any more.