Big news for NPS account holders! A major change is coming to pension rules...
Following the hike in the Dearness Allowance (DA), the government is now poised to introduce significant changes to the regulations governing the pension sector and the National Pension System (NPS). According to sources, the government plans to raise the cap on Foreign Direct Investment (FDI) in the pension sector directly from 49 percent to 100 percent. To facilitate this, a crucial bill is likely to be introduced during the upcoming Monsoon or Winter session of Parliament. Let us understand the implications of these potential changes and how they will impact NPS account holders.
**What is the Government's New Plan Regarding FDI in the Pension Sector?**
Currently, the maximum limit for FDI in pension funds stands at 49 percent. The government intends to raise this limit to 100 percent by amending the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013. Once the necessary approval processes are completed, this amendment bill is expected to be tabled during either the Monsoon or Winter session of Parliament.
**What is the Major News for NPS Account Holders?**
This amendment bill may include a proposal to completely separate the National Pension System (NPS) Trust from its regulator, the PFRDA. Currently, the NPS Trust operates under the regulatory framework of the PFRDA. In the future, it could be brought under the purview of a charitable trust or the 'Companies Act.' To ensure the NPS remains independent of the PFRDA, a competent Board comprising 15 members will be constituted. Since the Central and State governments are the largest contributors to this fund, the majority of the members on this Board will represent the government.
**What is the Connection Between This Change and the Insurance Sector?**
This move by the government is modeled entirely on the insurance sector, where 100 percent foreign investment is already permitted. It is worth noting that Parliament had, just last year, raised the FDI limit in the insurance sector from 74 percent to 100 percent. Before that, in 2015, the Insurance Act was amended to increase the limit from 49 percent to 74 percent.
Why are these changes to PFRDA and NPS regulations necessary?
Strengthening the System: The PFRDA was established to facilitate the orderly growth and expansion of the pension sector. The segregation of the NPS Trust is expected to bring about greater transparency and autonomy in operations.
The NPS was implemented for Central Government employees (excluding the Armed Forces) effective January 1, 2004, with the aim of alleviating the growing burden of the Old Pension Scheme on the government exchequer. In 2009, it was also opened up to the general public. Through these changes, the government aims to ensure better management of funds and their effective utilization for the nation's development.
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