Pension Fund Regulatory and Development Authority was established by the Government of India on 23rd August, 2003 to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.
BACKGROUND & ORIGIN
During the last decade, a shift in pension policy in India was witnessed which resulted in the introduction of a new pension system. A High level Expert Group (HLEG) and the Old Age Social and Income Security (OASIS) Project commissioned by the Government were the two initial milestones on the road to pension reforms for the Government employees and the unorganized sector respectively.
During the Budget 2003-04 a new pension system was announced by Government of India which was based on defined contribution, to be shared equally in the case of Government employees between the Government and the employees. Under such scheme there will be no contribution from the Government in respect of individuals who are not Government employees. The Ministry of Finance was empowered to oversee and supervise the Pension Funds through a new and independent Pension Fund Regulatory and Development Authority (PFRDA). On 23rd August 2003 the Government approved the proposal to implement the budget announcement of 2003-04 relating to introduction of a new restructured defined contribution pension system and accordingly an Interim PFRDA was introduced vide Government Resolution dated 10th October, 2003 and 14th November, 2008 respectively.
To bring the new pension system within a statutory regulatory jurisdiction, an ordinance was promulgated on 29th December, 2004 for setting up a statutory
Pension Fund Regulatory and Development Authority. Subsequently PFRDA Bill also known as Pension Bill was first time introduced into the parliament in the year 2005 to replace the ordinance, but could not be passed in the Lok Sabha. The PFRDA Bill, 2011 was reintroduced in Lok Sabha on 24th March, 2011, under the bill the legislation in addition to the setting up of PFRDA also seeks to empower the same to regulate the New Pension System (NPS).The said Bill was referred to the Standing Committee on Finance on 29th March, 2011 for examination and report thereon.The Standing Committee on Finance gave its Report on 30th August, 2011. Based on the recommendations of the Standing Committee, official amendments were incorporated in the Bill and the same was approved by the Union Cabinet in its meeting held on 4th October, 2012. Some of the key amendments incorporated in the Bill based on the recommendations of the Standing Committee on Finance are as follows:
- That the subscriber seeking minimum assured returns shall be allowed to opt for investing his funds in such scheme providing minimum assured returns as may be notified by the Authority;
- Withdrawals will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by the regulations;
- The foreign investment in the pension sector at 26% or such percentage as may be approved for the Insurance Sector, whichever is higher;
- At least one of the pension fund managers shall be from the public sector;
- To establish a vibrant Pension Advisory Committee with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act.
In the year 2013 both the houses of parliament i.e. Lok Sabha and Rajya Sabha on 04th September, 2013 and 06th September, 2013 respectively have passed the PFRDA Bill, 2013. The said bill has also received the assent of the President on the 18th September, 2013 and became `The Pension Fund Regulatory and Development Authority Act, 2013’. The act conferred the statutory status to the Interim PFRDA to develop and regulate National Pension System (NPS) earlier known as New Pension Scheme.
NATIONAL PENSION SYSTEM- AN OVERVIEW
The National Pension System reflects Government’s effort to find sustainable solutions to the problem of providing adequate retirement income. As a first step towards instituting pensionary reforms, Government of India moved from a defined benefit pension to a defined contribution based pension system by making it mandatory for its new recruits (except armed forces) with effect from 1st January, 2004. Since 1st April, 2008, the pension contributions of Central Government employees covered by the National Pension System (NPS) are being invested by professional Pension Fund Managers (PFM’s) in line with investment guidelines of Government applicable to non-Government Provident Funds.
NPS has been made available to every citizen from 1st May, 2009 on a voluntary basis. The NPS architecture is transparent and will be web-enabled. It allows a subscriber to monitor his/her investments and returns under NPS, the choice of Pension Fund Manager (PFM) and the investment option would also rest with the subscriber. The design also allows the subscriber to switch his/her investment options as well as pension funds. The facility for seamless portability and switch between PFMs is designed to enable subscribers to maintain a single pension account throughout their saving period.
The National Pension System has been designed to enable the subscriber to make optimum decisions regarding his/her future and provide for his/her old- age through systemic savings from the day he/she starts his/her employment. It seeks to inculcate the habit of saving for retirement amongst the citizens.
In the light of the above, it can be concluded that in order to effectively invest and manage huge funds belonging to a large number of subscribers and to ensure the integrity of NPS, establishment of a statutory PFRDA with well defined powers, duties and responsibilities would benefit all the subscribers of the NPS.