The Pension Fund Regulatory and Development Authority (PFRDA) Bill 2009 has become the bone of contention among political bigwigs from West Bengal, which has apparently put the legislation into deep cold storage, at least until the West Bengal Assembly elections.
The pension sector regulator PFRDA’s New Pension Scheme (NPS) has attracted opposition by Left Front leaders who are understood to be dead against the equity investment option given to investors in the NPS (wherein 50% of the funds would be invested in equities), say highly placed sources close to the development.
The Left has traditionally taken a hard stand against the State’s money flowing into the capital market. Our sources tell us that the inexplicable and complete silence over passing the PFRDA Bill is on account of opposition by railway minister, Mamata Banerjee of the Trinamool Congress. With West Bengal’s Assembly elections round the corner, the Trinamool Congress hopes to create history by ending decades of CPI(M) rule. At this stage, Ms Banerjee, an important ally of the Congress, probably wants to ensure that the Left doesn’t create an issue out of the investment pattern under the New Pension Scheme.
“There is no other reason why there is no attempt to have the Bill passed, even when the finance minister’s Budget speech announced that the government would credit Rs1,000 into each new NPS account that is opened,” said a source, requesting anonymity.
Highly-placed sources in the government believe that this political imbroglio is the main reason why the PFRDA Bill has not received the requisite priority. For a long time now, the pension sector in India has been wading through untested waters on what are essentially flimsy support structures. In the absence of a sound, robust legal framework for regulation, the PFRDA has been working barefoot to develop the new pension system.
Although there exist several enactments that seek to safeguard the interests and rights of senior citizens with regard to pension, these are minor, scattered and unrelated Acts and Rules that do not provide a comprehensive legal framework for the functioning of this sector.
These include, among others, the Pensions Act, 1871, the Central Civil Services (Pension) Rules, 1972, Central Civil Services (Commutation of Pension) Rules, 1981, Payment of Arrears of Pension (Nomination) Rules, 1962.
The PFRDA was established amid much fanfare by the government in 2003. The PFRDA Bill, 2005, which was to be an enabling legislation that defined its powers and duties, failed to receive the approval of Parliament. Through an executive order, the government mandated PFRDA to act as the regulator for the pension sector in the interim. With the end of the 14thLok Sabha on February 26, 2009, the Bill lapsed. The Bill was reintroduced in 2009, but has been attracting cobwebs as it has been blocked by political hurdles. Strictly speaking, this means that if there is a regulatory action needed, the PFRDA has no statutory authority or power at its disposal to initiate action.
The capital markets regulator, Securities and Exchange Board of India (SEBI) faced a similar dilemma when it first became operational. SEBI was formed by the government in 1988, but received legal mandate only four years after, with the passing of the SEBI Act, 1992. Until that time, it had no legal backing to allow it to manoeuvre through the mess that characterised the capital markets until then.
Although the interim PFRDA has taken some commendable steps in initiating and implementing the New Pension Scheme (NPS) architecture, there exist numerous gaps in the administration and functioning of this scheme that need to be addressed immediately. The lukewarm response to the voluntary NPS so far demands thorough scrutiny on part of the regulator.
Pension sector reforms in India have historically taken a backseat to other reform initiatives, leaving the sector in a state of inertia. The deficiencies in the current pension system in terms of low coverage, underdeveloped private pension market, underperformance of various pension and provident fund schemes, investment restrictions etc are only holding back the development of the economy as a whole.
With the number of persons aged 60 and above expected to grow from 100 million in 2010 to 330 million by 2050, pension reforms need to be taken up on a priority basis.
The first step in this process would be to establish an umbrella Act to support the industry regulator. Sadly, the powers-that-be have other things on their agenda. — Sanket Dhanorkar