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Informist, Tuesday, Mar. 11, 2025

 

By Sagar Sen and Priyasmita Dutta

 

NEW DELHI – Pension funds are likely to emerge as unexpected beneficiaries of the proposed hike in the foreign direct investment limit in the insurance sector. The limit for FDI investment in pension funds may be scaled up to 100% from 74%, thanks to a regulation that links their limit with that for the insurance sector, finance ministry officials said.

 

"Pension sector tracks the insurance sector for the FDI limit, as and when Insurance Amendment Bill is cleared by the Parliament, it will also increase FDI limit in pension sector," a senior finance ministry official told Informist. "The hike in FDI limit will encourage overseas fund managers who see opportunity to set up operations in India. This will also help investors who want to be independent in their business decisions and do not want to wait for Indian partners."

 

In the Budget for 2025-26 (Apr-Mar), Finance Minister Nirmala Sitharaman had proposed that the FDI limit for the insurance sector be raised from 74% to 100%. "This enhanced limit will be available for those companies which invest the entire premium in India. The current guardrails and conditionalities associated with foreign investment will be reviewed and simplified," she said in her Budget speech.

 

This increase in FDI limit in the insurance sector will be rolled out once the Insurance Amendment Bill is cleared by Parliament. "We are yet to take the proposed Bill to the Union Cabinet for approval. Once the Cabinet approves, it will be tabled in Parliament and it may be referred to select parliamentary committee," another official said.

 

According to the Pension Fund Regulatory and Development Authority Act, 2013, foreign ownership of pension funds is capped at 26% or the prescribed limit for insurance companies, whichever is greater.

 

"The aggregate holding of equity shares by a foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India taken in aggregate in the pension fund shall not exceed twenty-six per cent of the paid-up capital of such fund or such percentage as may be approved for an Indian insurance company under the provisions of the Insurance Act, 1938, whichever is higher," the Act says.

 

Currently, pension funds can have up to 74?I, tracking the insurance sector.

 

The move will impact the 11 pension fund managers operating under PFRDA – LIC Pension Fund Ltd., SBI Pension Funds Pvt. Ltd., UTI Pension Fund Ltd., HDFC Pension  Fund Management Ltd., ICICI Prudential Pension Funds Management Co. Ltd., Kotak Mahindra Pension Fund Ltd., Aditya Birla Sun Life Pension Fund Management Ltd., TATA Pension Fund Management Pvt Ltd., Max Life Pension Fund Management Ltd., Axis Pension Fund Management Ltd., and DSP Pension Fund Managers Pvt. Ltd.

 

Though these pension fund managers do not have any direct foreign investment, most of them are being promoted by insurance and mutual fund companies, which in turn have some foreign direct investment.

 

The government has been batting for reforms in the pension sector and had recently rolled out the Unified Pension Scheme for central government employees who do not want to stick with the National Pension System. Globally, the pension sector is a thriving and vibrant market, which provides long-term and sustainable resources for infrastructure development.  End

 

Edited by Avishek Dutta

 

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