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Govt may cap FDI in pension funds at 26 pc

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(Right to left) Mr C. S. Rao, Chairman, IRDA, Mr D.C. Gupta, Finance Secretary, and Mr Sunil B Mathur, Chairman, LIC, at the 8th conference on insurance in the Capital on Wednesday. --Kamal Narang

New Delhi , Oct. 15

THE Government is considering capping the foreign investment limit in pension funds at 26 per cent in line with the FDI limit for the insurance sector, according to the Finance Secretary, Mr D.C. Gupta.

He was speaking to newspersons on the sidelines of an insurance sector seminar organised by FICCI.

He also said that the new pension system would roll out from January 1, 2004 and would be opened for other sectors later.

"The new scheme will be applicable for Government officials from January 1, 2004. It will also be applicable for private players. We expect a large number of corporates to join after the entire mechanism is in place," he added.

While the Government would make matching contribution for its employees, corporates would be free to make any proportion of contribution for employees.

The new pension system would offer the employees the facility of portability - they can move from one scheme to another.

"The consumers would also have the choice to invest in safe, balanced and equity schemes," Mr Gupta said.

He added that the pension fund manages would be picked through a competitive bidding process and a Central Registration Authority (CRA) would be constituted soon.

Even State Governments are keen on joining the new pension system considering their unsustainable pension liabilities. "The pension bills of States have mounted to Rs 24,000 crore while the entire salary bill was about Rs 36,000 crore. This way it is increasing, it is difficult to sustain."

The Chairman and other members of the new interim pension regulator would be appointed soon while the CRA would be put in place shortly.

The new system would co-exist with the existing Employees Provident Fund Organisation. "There will be no overlapping with EPFO."

On the insurance sector, Mr Gupta said that LIC continued to dominate the market, with the private sector having just 10 per cent share. "Their share in rural, health and motor insurance segments is even less," he added.

The Government was open to having more long-term financial instruments and was in favour of weather derivatives, monsoon futures and credit derivatives.

Earlier, the Chairman of the Insurance Regulatory and Development Authority (IRDA), Mr C.S. Rao, said that life insurance had registered a growth of 26 per cent and general insurance 23 per cent in the last two years. The average growth was 25 per cent.

The total premium income of the insurance industry in 2002-03 was placed at Rs 7,1376.11 crore, of which life insurance alone accounted for 78 per cent.

An IRDA committee was looking into brokerage commission and the remuneration structure for insurance agents. The authority recognised the importance of intermediaries in the insurance business, he added.

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