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5% of pension funds to flow into stocks

As many as 19 states have endorsed an interim arrangement for investing the accumulated funds under the New Pension Scheme (NPS).

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NEW DELHI: As many as 19 states on Monday endorsed an interim arrangement for investing the accumulated funds under the New Pension Scheme (NPS). However, the three Left-ruled states held out, indicating broader pension reforms remained stuck in the political spin.

The interim arrangement for investment of NPS funds, on the lines of the investment guidelines for non-government employees provident fund (EPF), would allow 5% of the funds to be invested in equities and another 10% in AAA-rated corporate bonds. Since the contributory NPS was introduced for all fresh government recruits in January 2004, about Rs 1,500 crore has accumulated in public accounts at the Centre and in 17 states which have adopted the scheme.

After the Cabinet approves the investment guidelines and these are notified, it is estimated that about Rs 75 crore would be immediately available for investment in stocks and another Rs 150 crore can be put in corporate bonds.

In the public accounts, NPS funds earn a return of 8% per annum.

At a specially convened meeting of chief ministers and state finance ministers here, Prime Minister Manmohan Singh used genteel persuasion and finance minister P Chidambaram sounded an alarm bell in a bid to evolve a consensus for urgently passing the Pension Funds Regulatory and Development Authority (PFRDA) Bill to provide a statutory basis for pension reforms in the country, but failed to win the support the Left-ruled states.

The investment pattern would be interim in nature till the passage of PFRDA Bill. The first fund manager would be from the public sector, Chidambaram said. He said there was an emerging consensus that the Bill should be passed as early as possible, albeit “with some amendments.”

“We will continue to consult the political parties,” he said. Following CPI(M) central leadership’s diktat that its chief ministers should toe the party line, West Bengal, Tripura and Kerala opposed the NPS and asked the government to “have a reassessment of date and rework the projection and find a socially feasible formula.”

“We, Left-ruled states, have opposed the NPS ... And conveyed our unified opposition,” West Bengal finance minister Asim Dasgupta said. Kerala finance minister Thomas Issac also aired similar views.

Objecting to a “cut” in salary and pension and “absence” of government guarantees for retirement benefits in NPS, Dasgupta said, “We are not in a position to accept the new scheme. We strongly urge that a more in-depth factual and analytical discussion be held before taking any further step towards the NPS.”

Earlier, the Prime Minister appealed to the states to cooperate with the Centre to allow investing a part of pension funds in stock markets and other options such as bonds. The pattern permitted for non-government provident funds would fetch a superior return for NPS funds than that given by the government at present without compromising on the safety factor.

“Most countries in the world - especially the developed countries - are struggling to keep their pension systems afloat... In India, we still have the opportunity to put in place a defined contribution pension system. The moment must be seized. The NPS is an urgent necessity,” Chidambaram said.

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