The finance ministry on Wednesday ruled out more than 26 per cent foreign direct investment in pension sector and said fund managers would be selected through a competitive bidding process.

"The insurance legislation provides 26 per cent FDI. There will be no change in FDI limit for pension from the insurance sector," finance secretary D C Gupta said on the sidelines of a Federation of Indian Chambers of Commerce and Industry's insurance conference in New Delhi.

Industry sources said the move would be a dampener to the global pension majors.

For instance, Principal Finance Group of the United States wants more than 26 per cent stake in its insurance and pension venture with Punjab National Bank and Vijaya Bank. The US pension giant is awaiting the final guidelines from the interim Pension Fund Regulatory and Development Authority.

Other companies like Aviva also like to go solo in the pension sector.

Gupta said the pension fund managers would be selected through a competitive bidding process. The process is slated to start shortly, he added.

The government intends to allow only serious players with deep-pockets in the pension business.

Although FDI may be capped as it is in the IRDA Act, the government is slated to allow pension funds to invest in overseas markets.