TNN

New Delhi, Jun 4: The government is likely to introduce the Pension Fund Regulatory and Development Authority (PFRDA) Bill by the second week of July and 
may seek to debar investment of pension funds overseas besides limiting foreign direct investment (FDI) in pension companies to the same level as the insurance sector.

The proposal to tag FDI limit with the insurance sector is intended to enlarge the scope of foreign investments in pension fund companies once the government increases FDI limit in the insurance sector from the existing 26% to 49%.

The PFRDA Bill was first introduced in Parliament by the UPA government in 2005. The bill was brought to replace a 2004 ordinance setting up the pension regulator. The bill, however, met with stiff opposition from the Left parties and lapsed after dissolution of the 14th Lok Sabha.

The pension reforms bill was also referred to the parliamentary standing committee during the previous regime. The House panel had recommended introducing a clause specifying an FDI limit for investments in fund managers. The bill in its original draft was silent on the issue of FDI.

Besides the FDI limit, the parliamentary panel had also recommended to debar overseas investment of pension funds by fund managers; giving options to subscribers to only invest in government bonds and at least having one fund manager from the public sector.

Sources said the government was considering making changes in the original draft of the PFRDA Bill and take into account all the recommendations of the parliamentary standing committee. Already, the PFRDA has appointed three fund managers from the public sector -- LIC, UTI and SBI among six fund managers appointed by the regulator.

The long-term investment plan of the New Pension System (NPS), rolled out to all citizens from May 1, 2009, has given three different investment options under E, G and C category -- ranging from high-risk equities to low risk government bonds and a moderate return option under corporate bonds.

Anyone can join the NPS with a proposed minimum investment of Rs 6,000 annually. The fund collection would be made using the network of 23 entities selected for this purpose. Investments in equities have been capped at 50% of an individual's pension fund.

The NPS is designed to create a long-term debt market for a period ranging between 15-30 years. Taking lessons from some global pension funds which lost all its reserves in the meltdown, it has been proposed that risk to equities factor be reduced to a maximum of 10% towards the retirement age of a subscriber.

At the time of superannuation, the beneficiary receives 60% of the total amount earned through investments and the rest is deposited with an insurance fund manager of the subscriber's choice from where he receives a monthly pension.

Those who do not make a choice will be assigned auto choice where investment will be made in a life-cycle fund, that is at the lowest entry age a subscriber's fund will be invested in pre-determined portfolio -- 65% in equities, 10% in central government securities and 25% in corporate and state government securities.