On Friday, September 6, 2013, Rajya Sabha passed the Pension Fund Regulatory and Development Authority Bill (PFRDA Bill) that seeks to officially create an eponymous regulator for the country's pension sector. The bill also proposes to allow foreign companies to hold an up to 26% stake in pension fund companies. Two days earlier, the bill had been passed by the lower house, Lok Sabha.
Earlier, in 2005, the government had earlier introduced a similar bill but it lapsed as the Lok Sabha's term got over before it could be passed. Later in 2011, the bill was reintroduced in the Lok Sabha by the then finance minister Pranab Mukherjee, and was subsequently referred to a standing committee. It was reintroduced with amendments, and passed in the 2013 monsoon session.
So, what is the bill supposed to do?
The PFRDA Bill seeks to establish the Pension Fund Regulatory and Development Authority to regulate the market for pension funds. The need for the regulator arises as India, unlike many western countries, does not have a universal social security system. So the regulator is supposed to act as the protector for people who invest in these funds. The bill also allows for foreign direct investment (FDI) in any such fund to the tune of 26%.
The National Pension System (NPS), which PFRDA would oversee, earlier called the New Pension Scheme, was launched in 2004, and is a government-approved pension scheme for Indian citizens in the 18-60 age group. While central and state government employees have to subscribe mandatorily, it's optional for others. It became mandatory for all central government employees joining after January 1, 2004. It was later extended to state governments, of which a few have accepted it. The NPS was opened to all citizens from May 1, 2009.
Now, why the opposition?
The money collected is invested in stock markets to increase the returns, unlike the earlier pension system, where no such thing happened. The money invested by government employees is invested in government and corporate bonds, while non-government employees have the option to choose from various funds which invest in stocks, government and corporate bonds, fixed deposits and liquid funds. Government-appointed fund managers (LIC Pension, SBI Pension, Reliance Capital, etc.) manage the various funds.
Thus, the money is exposed to the vagaries of the market. There is no guarantee of returns, unless the subscriber purchases market-based guarantees. This rule differs from bank deposits, where deposits up to Rs 1 lakh are guaranteed.
This is where the basic opposition stems from. If there is no guarantee of returns, how can these funds be a support after retirement, which is what pension is supposed to do? Employees of private companies can invest however they want, and a regulatory body for them is fine. But how can a pension scheme for government employees offer no guaranteed returns?
Trinamool Congress opposed the motion in both the Lok Sabha and the Rajya Sabha. Its basic contention is that one of the main attraction of a job either in the central government or the state governments is that it ensures a pension which people get till the end of their lives. The bill provides for investment of the money of government employees in private security instruments. This brings in the risks, as nobody knows how the fund would perform at any point of time. This negates the very idea on which the system of pension is based. 26% FDI was also opposed by the party. The Left parties also opposed the motion in both houses on both these counts.
Is the opposition justified?
All the six Pay Commissions have uniformly stated that pension is an inalienable right of the employees and workers of the country. By ensuring no guarantee of a particular percentage of interest as returns, because of investments in market-dependent private instruments like stocks, the government is violating this basic right of the citizens.
The bill has debunked the idea of pension as an assured source of income. The government has made pension from a benefit-defined scheme to a contribution-defined scheme, as benefit is no longer assured despite regular contributions throughout one’s working life. It has defined fund managers, and where the funds can be invested. It has ensured everything, except the pension amount that the worker would be getting upon retirement.
Parting Thought
The bill had been hanging fire for ten long years. Now the Congress and BJP have colluded to pass this anti-people bill. This would result in the halting of any guaranteed returns upon retirement. The hard-earned money of people would go to waste. The National Pension System would remain a pension scheme only in name.
