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Early Pension Withdrawals Unlikely
By Ashish Aggarwal, BusinessStandard.com
India
August 18, 2005
The government is unlikely to accept the recommendation of the standing committee on finance to allow premature withdrawals under the new pension scheme (NPS), which it thinks, would defeat the purpose of accumulating a corpus large enough to generate a reasonable pension. The minimum capital requirement for fund managers is expected to be fixed at Rs 25 crore.
"Allowing premature withdrawal would defeat the purpose of the scheme. The employees have an optional tier II withdrawable account. It can be used to invest money that can be withdrawn anytime," D Swarup, PFRDA chairman said.
The tier II account will consist only of contributions from employees. The standing committee had suggested allowing one repayable advance after 15 years, and 50 percent withdrawal after 25 years.
NPS is unlikely to become functional before the next year. The capital requirement for pension fund managers (PFM) is at Rs 25 crore, compared with Rs 100 crore in insurance. This is expected to keep costs low for the fund managers.
The foreign investment limit is expected to be linked to the cap for insurance sector. At present, it is fixed at 26 percent.
"Fund managers will not have the accumulations on their balance sheets, unlike the insurance companies, which take the insurance premium on their books. The capital requirement will, therefore, be lower," Swarup, said.
On the numbers of PFMs to be permitted, Swarup, said, "The government has specified the number of PFMs at six. But, once the PFRDA Bill is passed, we will increase the number of players." With LIC, SBI, UTI and PNB from the public sector, besides scores of players from the private sector, keen to join, the limit of six is felt to be too low.
The advisory committee under the PFRDA will be on the lines of a similar committee under the IRDA. It will include representatives of employees as suggested by the committee. The committee's proposal to allow 100 percent investment in government securities is also expected to be included.
While the Cabinet is yet to take up changes in the PFRDA Bill in light of the standing committee's report, the interim regulator is working on the draft regulations.
The regulations will include capital adequacy requirements, specify separate books of accounts for pension business, electronic custody requirements, daily or weekly disclosure of net asset value, and redressal mechanism.
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