The Union Cabinet on Thursday approved a Bill for up to 26 per cent foreign direct investment (FDI) in pension fund managers for the New Pension System (NPS). The Bill is likely to be placed in Parliament in the coming winter session.

However, if the insurance FDI limit goes up to 49 per cent, as proposed by the Cabinet, the pension sector limit may also go up to that level.

"The foreign investment ceiling in the pension sector at 26 per cent or such percentage as may be approved for the insurance sector, whichever is higher, may be incorporated in the present legislation," said the finance minister.

"The biggest hurdle for the NPS is lack of awareness. More capital in the sector would ensure mean fund managers would be able to invest more in creating awareness and thus pushing the product among a larger number of people," says Vikas Raj, chief executive officer, IDFC Pension Fund.

At present, six pension fund managers manage a corpus of Rs 20,535 crore. Most of this is mandatory contribution from Central government employees.

The Cabinet also asked fund managers under the NPS to offer options of minimum assured returns to investors.

This could queer the pitch for pension fund managers, as they would be "required to back the guarantee with net worth, increasing the need for capital," says Vikas Raj of IFDC Pension Fund.

A similar condition put forward by the Insurance Regulatory and Development Authority (Irda) for pension plans launched by insurance companies has had an undesirable impact-no such scheme has been launched for a long time.

The Cabinet also allowed withdrawal of up to 25 per cent contribution made by the subscriber subject to conditions such as purpose and frequency. At present, only 20 per cent contribution can be withdrawn before the person turns 60, with a condition that 80 per cent contribution has to be used to buy an insurance annuity scheme.

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