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Pension fund set to enter stock market
R. Suryamurthy
Tribune News Service

New Delhi, January 22
The UPA government said today that it would allow a portion of the pension fund to be invested in stock market, despite opposition from Left parties, as 19 states have backed the move. However, it would continue its dialogue with political parties to get the Pension Fund Regulatory and Development Authority (PFRDA) Bill pending in Parliament passed.

Finance Minister P. Chidambaram told reporters after a meeting of all state representatives that the government would notify an interim investment pattern for funds collected under the new pension scheme (NPS) to be invested in stock markets.

The new pattern would give an option for investing 5 per cent of the amount in stock markets. It would also have the option of putting the money in government bonds, he said. The investment pattern would be interim in nature till the passage of the PFRDA Bill. The first fund manager would be from the public sector, Chidambaram said after the meeting chaired by Prime Minister Manmohan Singh.

However, West Bengal Finance Minister Asim Dasgupta said, “We Left-ruled states (West Bengal, Kerala and Tripura) have opposed the NPS. We conveyed our unified opposition.” Left parties are also opposed to the Bill. But NDA-ruled states demanded expeditious passage of the Bill.

“We will continue to consult the political parties..,” Chidambaram said, adding that it was ultimately political parties which would give views on the Bill in Parliament. He said there was an emerging consensus that the Bill should be passed as early as possible, but “of course with some amendments”.

The Central Government employees recruited since January 1, 2004, are under the NPS.

The interim notification would include setting up of a Central record keeping agency for the NPS, Chidambaram said. At present, there is no agency to keep records. But broad estimates put the funds under the NPS at Rs 1,500 crores. So far, 19 states have joined the NPS. Only the three Left-ruled states are out of it. North-eastern states have also indicated their interest in joining the scheme, the Finance Minister said.

He said the total expenditure of the Central Government on pension payments to its retired employees has gone up from Rs 3,272 crore in 1990-91 to Rs 28,963 crore in 2005-06.

As a percentage of net tax revenue the total pension outgo has increased from 7.6 per cent in 1990-91 to 10.56 per cent in 2005-06. The compound annual growth rate (CAGR) of the pension outgo of the Central Government was 17 per cent during this period. The combined pension expenditure of all states has risen from Rs. 3,131 crore in 1990-91 to Rs 41,660 crore in 2005-06.

Chidambaram said assuming a continuation of the trend, projections indicate that pension expenditure of the Centre could reach Rs 35,020 crore by 2009-10. For the states, the projected figure is as high as Rs. 65,081 crore by that year.

Earlier, the Prime Minister sought the states’ cooperation for new investment avenues for funds under the NPS. At present, the contribution under the NPS is put in the public account, which fetches a fixed annual return of 8 per cent only, he said.

The broad pattern includes the option of investing 25 per cent of the funds in Central Government securities and others, 15 per cent in state government securities and others, 25 per cent in public financial institutions and others and 30 per cent in any of these three options.

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