The amendments will also help to attract more foreign investors, who are now allowed to invest upto 49 per cent in the sector. Though government officials have often talked of plans to raise this limit to 74 per cent (in tandem with the insurance sector), the straitjacket of the pension rules is seen as a dampener.
Reforms in India’s pension sector has been patchy, with several grey areas persisting in the market. For instance, the largest pension fund
operator in the country, the Employee Pension System (EPS) under the Employees' Provident Fund Organisation, is run by the labour ministry and is outside the scope of the PFRDA.
All private sector employees earning below a certain threshold have to mandatorily subscribe to the EPS, though the government established a bridge between the two pension systems in 2015.
The most important reform will be the establishment of more than one pension trust instead of the sole National Pension System Trust. The NPS Trust was established by the PFRDA
in 2008 with the execution of the NPS Trust Deed. Any worker who subscribes to the pension system run by the PFRDA comes under the NPS Trust. Their interests are guarded by the NPS’ board of trustees. While the money to build up the pension funds of the workers are invested by the companies that bid for the rights, the board of trustees takes care of the assets and funds in the interest of the subscribers.
The government feels that a sole NPS has stalled the development of the sector. Hence, the Trust deed will be modified to allow for multiple trusts, which can be set up by any pension company. So a foreign pension fund like, say Calpers, could run a pension fund in India and set up a pension trust for the purpose.
The existing NPS will become a self-regulatory organisation to ensure that best practices are followed by all the pension trusts. It will report to the regulator, the renamed PRDA.
As of December 2019, the assets under management under the New Pension Scheme administered by the PFRDA is Rs 4,01,152 crore, recording a phenomenal annual growth rate of close to 38 per cent.
The government expects the reforms to spark a huge growth in the sector, making it overtake the insurance sector in another decade. The latter is about four times the size of the pension sector at present.
The PFRDA Act was passed by Parliament in 2013, though the New Pension Scheme was introduced on January 1, 2004. There was strong opposition to the bill, which had to be finally introduced as a money bill to be able to become a law. However, the proposed bill of 2020 will not be a money bill. So, once it is introduced, it will go to the standing committee of finance for detailed examination.
Reportedly, the finance ministry
has already got the nod for the changes from the concerned regulators, including the Reserve Bank of India and the Securities and Exchange Board of India.