NPS to offer 8.6% assured return for the portion invested in Government bonds

The government has secured the support of BJP on the bill to reform the pension sector by agreeing to the main opposition’s demand that the scheme offer a minimum assured return and foreign investment be capped at 26%.

The new pension scheme (NPS) will offer an option for an assured return of 8.6% for investments in government bonds, while subscribers willing to take a higher degree of risk can look at other choices, where their contributions are invested in a mix of private and government placements.

An understanding over the Pension Fund Regulatory and Development Authority (PFRDA) Bill was arrived at at a meeting on Monday between finance minister Pranab Mukherjee and BJP leaders L K Advani, Arun Jaitley, Sushma Swaraj and Yashwant Sinha in Parliament. However, no consensus was possible with regard to the Companies Bill.

This is the second occasion on which the government and BJP have cooperated on the PFRDA Bill that seeks to give statutory cover to the NPS in force since 2003. The bill was introduced in Parliament in the face of Left resistance with BJP’s backing and now its prospects of passage seem bright and it may be moved on Wednesday.

The terms of the deal are on the lines of the recommendations of the parliamentary finance standing committee that did not agree with the Centre’s proposal that foreign investment in pension funds be raised to 49%, and also called for an assured rate of return, arguing that senior citizens should be given security on their investment.

The panel was also critical about the mediocre performance of the fund so far and the relatively low number of subscribers. While the government looked uncertain about the bill last week, Mukherjee’s renewed bid for an agreement has borne fruit. BJP also seems prepared to be more accommodative towards Mukherjee, who the party feels is not needlessly combative towards the opposition.

Passage of the pension bill will be an important gain for the government after the reverses it has suffered over reform initiatives like FDI in multi-brand retail apart from the finance standing committee turning down proposed changes in the banking laws that would have given private investors voting rights equal to their investment.

On the Companies Bill, UPA conceded BJP’s demand for allowing Limited Liability Partnership that would enable a group comprising only professionals from a category like chartered accountants or company secretaries to form their own company.

But the government has proposed so many changes to the bill — already scrutinized by a House panel – that it is now looking very different.

Source: The Economic Times