Pension Reforms Ready To Take Off - July 29 , 2008

It looks like the stage is set for pension reforms to finally take off. In a first interaction after the UPA won the trust vote, the pension fund regulator PFRDA has said the government is absolutely ready with the Pension Amendment Bill. The pension bill could be one of the biggest achievements for the finance minister if he manages to push this through and it could happen within two months. This could change the way the pension money of lakhs of government employees is managed and the kind of returns they get since the new law will allow them to invest more of their money in the stock markets as well.

For now all that the regulator needs to do is to rebid inviting private sector fund managers for the New Pension Scheme or the NPS and throwing open the NPS for private citizens, both issues which the Left was vehemently opposed to. As of now funds of only government employees are being managed by LIC, SBI and UTI. However, the bigger question for the regulator is whether government employees will opt for the new schemes since it is a voluntary offer.

At the moment Rs 1500 crore worth of funds of central government employees are already being managed by government owned fund houses and roughly 15 per cent of the monies are going as investment in equities.
Moreover, 19 state governments too have agreed to migrate to the scheme but are yet to transfer the money. Down the line the new pension scheme could also pose a challenge to the pension plans sold by life insurers. And to make this happen the pension regulator is also lobbying for hefty tax breaks.

Pension Scheme For Govt Staff Expected To Be In Place By May

New Delhi: The Pension Fund Regulatory and Development Authority (PFRDA) hopes to have the entire new pension scheme (NPS) architecture to be in place relating to Government employees by end-May this year. According to the source, a workshop on the ''overview of NPS and CRA (Central Recordkeeping Agency) architecture has been engaged in the process of registering the NPS trust and appointing a custodian and a trustee bank. The State Bank of India (SBI), the UTI Asset Management Company and Life Insurance Corporation have already incorporated their pension funds as new companies under the Companies Act, 1956 and are expected to start work by March 31, 2008. The three pension funds will be performing the investment management functions under the NPS for a fee. The NPS would at present offer only two investment choices - investment of entire contribution in Government securities alone or adopting the investment guidelines applicable to non-government provident funds. For non-government provident funds, the current Government guidelines provide that up to 15 per cent can be invested in equities and 85 per cent in fixed income instruments.

The NSDL Chairman, Mr C.B. Bhave, said that NSDL would take all efforts to make CRA operational with effect from June 1, 2008. The main functions and responsibilities of CRA include recordkeeping, administration and customer service functions for all subscribers of NPS; issue of unique permanent retirement account number (PRAN) to each subscriber and acting as an operational interface between PFRDA and other NPS intermediaries such as pension funds, annuity service provider and trustee bank.

PFRDA Demands Equal Tax Treatment For NPS

Ahead of the budget, interim pension regulator PFRDA on Feb 9 demanded equal tax treatment for New Pension Scheme (NPS) for government employees vis-à-vis provident funds like EPF, PPF and GPF. While contribution, returns and withdrawals under Public Provident Fund (PPF), Employee Provident Fund (EPF) and General Provident Fund (GPF) are exempt from tax, in case of NPS, only contribution and returns do not attract tax. However, withdrawal under NPS attract tax. This is called exempt, exempt and tax (EET) system, unlike exempt, exempt and exempt (EEE) system for PPF, EPF and GPF