25 Oct The separation of National Payment System Trust (NPS) from the Pension Fund Regulatory and Development Authority (PFRDA) for ensuring universal pension coverage (GS 3, Economics, The Hindu, Indian Express)
News/ Context: The government is likely to amend the Pension Fund Regulatory and Development Authority Act, 2013 so that the National Payment System Trust (NPS) could be separated from the PFRDA. As per the government, this is to be done to ensure universal pension coverage.
The development of the pension system: In the year 1999, the Government of India commissioned a national project titled OASIS, an acronym for Old Age Social and Income Security. This National project was to examine the policies related to income security of the age-old population in India. Based on the Recommendation of the OASIS report, the government replaced the then existing system of the Defined Benefit Pension System with the New Defined Contribution Pension system for the new entrants to the state or central government services except for armed forces.
The Government of India in 2003 established the Pension Fund Regulatory and Development Authority through a resolution to promote, develop and regulate the pension sector in India. Later in 2003, the government notified the contributory pension system, which was renamed as National Pension System in 2004. The NPS was subsequently extended to all citizens of the country w.e.f. 1st May 2009 including self-employed professionals and others in the unorganized sector on a voluntary basis. Thus today NPS is subscribed by employees of Govt. of India, State Governments, and by employees of private institutions/ organizations & unorganized sectors.
In 2013 the Pension Fund Regulatory and Development Authority Act was passed and then PFRDA came into the picture. Its main function was to regulate NPS, which still it is doing. The PFRDA is ensuring the orderly growth and development of the pension market.
The Preamble of the Pension Fund Regulatory & Development Authority Act, 2013 describes the basic functions of the PFRDA as “to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.”
National Pension System Trust (NPST) was established by PFRDA as per the provisions of the Indian Trusts Act of 1882 for taking care of the assets and funds under the NPS in the best interest of the subscribers. The powers, functions, and duties of NPS Trust are laid down under the PFRDA (National Pension System Trust) Regulations 2015, besides the provisions of the Trust deed dated 27.02.2008.
NPS Trust is the registered owner of all assets under the NPS architecture which is held for the benefit of the subscribers under NPS. The securities are purchased by Pension Funds on behalf of, and in the name of the Trustees, however individual NPS subscriber remain beneficial owner of the securities, assets and funds. NPS Trust, under the NPS Trust regulations, is responsible for monitoring the operational and functional activities of NPS intermediaries’ viz. custodian, Pension Funds, Trustee Bank, Central Recordkeeping Agency, Point of Presence, Aggregators and that of IRDAI registered Annuity Service Providers (empanelled with PFRDA) and also for providing directions/advisory to PF(s) for protecting the interest of subscribers, ensuring compliance through audit by Independent Auditors, and Performance review of Pension Funds etc.
The Amendment in the PFRDA Act could bring powers, functions, and duties of NPS Trust, which are currently laid down under PFRDA (National Pension System Trust) Regulations 2015, under a charitable Trust or the Companies Act. This is to be done with an intention to keep NPS Trust separate from the pension regulator and managed by a competent board. The majority of the members of the board are likely to be from the government as they, including states, are the biggest contributor to the corpus/fund of NPS. PFRDA had established the NPS Trust for taking care of the asset funds under NPS. The Trust was established by PFRDA for taking care of the assets and funds under NPS. The proposal to separate the two job roles has been under consideration for the last couple of years. The PFRDA was established for promoting and ensuring the orderly growth of the pension sector with sufficient powers over pension funds, the central record keeping agency and other intermediaries. It also safeguards the interest of members.
Md Layeeque Azam, Economics Faculty
Plutus IAS Current Affairs Team Member