The Interim Pension Fund Regulatory and Development Authority has decided to retain the public sector character of the new pension architecture, by deciding that passive investment by contributors will be routed into a public sector pension fund company.
The decision by the pension fund regulator is important for the new government employees who have become automatic entrants into the new system, with effect from 1 January, 2004.
The United Progressive Alliance government has come under pressure from the Left parties to revisit the new pension scheme launched by the former government at the Centre.
The latter have alleged that the scheme was effectively a privatisation programme that would affect the future security of all contributors to the scheme.
The defined contribution scheme launched from this year stipulates that every recruit to central government will have to deduct 10 per cent of his monthly salary as contribution towards his pension liabilities.
The Centre will also contribute a same amount for him. The employee would have the right to choose his pension fund manager and the type of scheme, in which his money should be parked and can also change it periodically.
The government is likely to give license to six pension fund companies in the first round, including at least one public sector company. They said the number of PSU fund managers could be more than one.
Each would offer three schemes ranging from a high degree of investment in government securities to the one where there would be a 50 per cent exposure in equity markets.
The PFRDA has now decided that if the contributors do not exercise any choice on their fund managers, then their deposits would be parked in the most secure scheme of the public sector fund manager company.
The decision is based on the premise that a large number of employees from the clerical and support staff would not have the financial acumen to decide on their investment manager properly.
This will therefore give them a feeling of safety about their future. Government sources said it is quite on the cards that the overwhelming majority of state government employees will also opt for the same passive investment route.
Meanwhile state governments including Haryana and Himachal Pradesh have already decided to join the new pension scheme for their employees. Other states have also held discussions with the PFRDA on the issue.
The regulator is expected to firm up the selection of a Central Record Keeping Agency by the next month. The CRA will be the depository of all funds from the contributors to the pension scheme and will be doing the netting out operations for the pension fund managers.
Several companies including NSDL, Stock Holding Corporation of India and UTIAMC have made presentations before the PFRDA headed by revenue secretary Vineeta Rai.
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