govt-likely-to-hike-fdi-limit-in-pension-sector

New Delhi
The government is considering a proposal to raise the foreign direct investment (FDI) limit in India’s pension sector to as much as 100%, with a corresponding amendment Bill likely to be introduced in an upcoming session of Parliament, sources indicated.

If implemented, the move would bring the pension sector in line with the insurance industry, where 100% FDI is now permitted. In fact, Parliament had approved legislation last year to increase the FDI cap in insurance from 74% to 100%, building on earlier reforms that had raised the ceiling from 49% to 74% following amendments to the Insurance Act, 1938 in 2015.

Sources added that proposed amendments to the Pension Fund Regulatory and Development Authority Act, 2013—which currently caps FDI in pension funds at 49%—could be introduced either in the Monsoon Session or the Winter Session, depending on the progress of approvals.

In addition to increasing the FDI limit, the draft Bill is expected to propose structural changes, including the separation of the National Pension System Trust from the Pension Fund Regulatory and Development Authority. At present, the functions and responsibilities of the NPS Trust are governed under the PFRDA (National Pension System Trust) Regulations, 2015. Under the proposed changes, the Trust could be restructured either as a charitable trust or brought under the Companies Act framework.

 

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The rationale behind this move is to create a clearer distinction between the regulator and the trust, ensuring that the NPS Trust operates independently under a professional board. The board is expected to comprise around 15 members, with the majority likely to represent the government, including state authorities, given their significant contribution to the pension corpus.

The Pension Fund Regulatory and Development Authority was set up to promote the growth of the pension sector while maintaining oversight over pension funds, recordkeeping agencies, and other intermediaries. It also plays a key role in protecting the interests of subscribers.

Meanwhile, the National Pension System was introduced as part of a broader reform to replace the traditional defined benefit pension model. It became mandatory for all new central government recruits from January 1, 2004 (excluding the armed forces initially), and was later extended to all citizens on a voluntary basis starting May 1, 2009.

This transition from a defined benefit, pay-as-you-go system to a defined contribution model was driven by concerns over the growing and unsustainable pension burden on government finances. The shift aimed to ease fiscal pressure and allow greater allocation of public resources toward developmental and socio-economic priorities.