Monday, August 22 2005 16:15 Hrs (IST) - World Time -

New Delhi: The Finance Ministry appears to be hastening up pension reforms, although it seems the insurance industry may have to wait for some more time for a comprehensive legislation and hike in Foreign Direct Investment (FDI) cap from 26 to 49 per cent.

The Union Cabinet is likely to take up for approval this week, the revised Pension Fund Regulatory and Development Bill, which is expected to allow 26 per cent FDI in the sector and make minor changes as per the recommendations of Parliamentary Standing Committee on Finance.

"The cabinet will take it up shortly," Finance Minister P Chidambaram told sources, but declined to give details of the changes that the ministry has proposed.

Sources in the ministry said the revised bill on pension is likely to stipulate a FDI cap of 26 per cent as it is for insurance sector, but bar premature withdrawals.

"We will not allow premature withdrawal. If it is allowed, then there is a high probability that it would become like the Employees Provident Fund where more than 90 per cent of the accounts have a balance of less than Rs 20,000 during maturity," a Ministry official said.

Since pension is long-term savings, there is a need to have a lock-in period more than other saving schemes, as it will enable pension fund managers to take a long-term view on their investments and ensure higher returns to the subscribers when they retire.

While approving 26 per cent FDI, the House panel had proposed flexibility in withdrawals and a risk-free option allowing the entire corpus to be invested only in safe Government securities.

On insurance bill, Chidambaram said: "The Narasimham committee has not submitted its report to us."

The 11-member panel under Insurance Regulatory and Development Authority (IRDA), headed by K P Narasimham, was going into the recommendations of the Law Commission that submitted a report on a comprehensive bill on insurance last fiscal.

Though the Law Commission has proposed major legal changes for insurance sector keeping in line with the rapid development that has taken place in the last few decades, the IRDA panel was asked to look into other issues as well.

Narasimham panel is looking into changes

The Narasimham panel is looking into changes that may be required in investments norms and sufficiency of assets of insurers as envisaged in Section 64VA of Insurance Act.

The panel will also look into changes in the norms for insurance surveyors as laid down in Section-64UM, tariff advisory committee (Section 64UA and Section ULA) and shareholders funds and policyholders funds (Section 49).

The panel may also propose changes in other sections of the Act.

Once the Narasimham panel submits its report to IRDA and Government, the Finance Ministry will come up with a comprehensive legislation by amending and merging all old insurance bills.

Sources in the ministry said Government is pushing for passage of pension bill in the current session or latest by the winter session, but the insurance bill may be taken up only next year.

Though Chidambaram had proposed FDI hike in insurance last year, Government is going slow on it considering the opposition from Left parties.