The foreign funds would be allowed to own up to 26 per cent stake in entities that will be set up by state-owned banks, mutual funds and financial institutions to manage the pension funds, sources told PTI.

The Left parties, which have been opposing the New Pension Scheme that would be based on contribution by the employees, have said that only public sector entities should be entrusted with the task of managing the pension funds.

While the government has conceded this demand, it has allowed for FDI in the entities that will be floated by public sector institutions for the job.

The Pension Regulatory and Development Authority, which has already appointed National Securities Depository Limited as the central record keeping agency, has invited preliminary bids to appoint pension fund managers.

Only financial institutions and banks in which government has at least 51 per cent share and manage assets worth Rs 10,000 crore (Rs 100 billion) can apply.

The sources said the public sector financial institutions will, however, have to float separate companies for pension fund business.

These companies, which can have up to 26 per cent FDI stake, would need to have paid up capital of at least Rs 10 crore (Rs 100 million). The last date for submitting expression of interest is May 25.

Once the pension fund managers are appointed, PFRDA will allow them access to the pension funds of employees of central government and state governments, said a PFRDA official.

He said the NSDL is already in the process of preparing a software, data base and network connectivity to manage all the funds deposited under the NPS.

It will also give permanent retirement account number to the employees, that could be used by them to contribute and access pension funds even if they shift from one job to another.

Under the NPS, implemented for all the Central government employees except armed forces recruited since 2004, employees have to contribute 10 per cent of their basic salary and dearness allowance, along with a matching contribution of their employer.

The fund manager will offer alternative products to employees including risk-free options under which funds would be invested in government securities, and share-market linked products with variable returns as well, sources said.

Finance Minister P Chidambaram had held meetings with state chief ministers last year along with Left party leaders on the issue.

Government has claimed that 19 states except three left ruled states - West Bengal, Kerala and Tripura, have already implemented the NPS and are eagerly awaiting operationalisation of the scheme.