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Govt to allow all in new pension scheme
August 27, 2003 20:45 IST
Last Updated: August 27, 2003 20:46 IST
New government employees along with self-employed professionals and those in the unorganised sector, will be allowed to opt for the contributory pension scheme announced on Wednesday by the finance ministry, which will soon set up an interim authority to regulate the sector.
An interim Pension Fund Regulatory and Development Authority would be set up on the lines of Sebi and IRDA, to be headed by a chairman and having four more members.
Mandatory programmes under Employees Provident Fund Organisation and others would continue. But individuals under the existing provident fund could voluntarily choose to additionally participate in the new pension scheme.
Self-employed professionals and those in the unorganised sector can opt for the new contributory pension scheme which will replace the present defined benefit scheme.
The existing provisions of General Provident Fund would be withdrawn for new employees.
The monthly contribution for the pension would come from 10 per cent of the employee's salary and DA and matching contribution from government.
The pension contribution and accumulation would be accorded tax preference up to a certain limit.
Individuals can exit at the age of 60 years but mandatorily invest 40 per cent of the pension wealth to purchase an annuity from an IRDA regulated life insurer.
State governments will have the option of joining the new pension system.
The new pension scheme would use the existing network of bank branches and post offices to collect contributions and interact with participants.
The government will allow pension fund managers to offer three schemes:
Pension fund managers would be free to make investment in international markets subject to regulatory restrictions.
The pension funds along with the Central Record Keeping and Accounting agency would be regulated by interim PFRDA, which was also cleared by the Cabinet.
The interim authority would be appointed by an executive order, as it was done in the case of Sebi and IRDA.
PFRDA would be headed by a chairman of the status of a secretary in the central government and four members. The chairman will function under the overall administrative control of the finance ministry.
The reforms have been undertaken by the government considering the low pension coverage of only 11 per cent of the working population.
It also came in the wake of growing pension expenditures, which increased by 21 per cent during 1990-2001.
The total pension liability of the central government employees rose to 1.66 per cent of GDP in 2002-03.
The Centre will have to spend Rs 23,158 crore (Rs 231.58 billion) for pension outgo this fiscal.
Pension liability accounted for 9.7 per cent of tax revenue in 1993-94 and increased to 12.24 per cent in 2002-03.
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