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GS2-Governance

The Pension Fund Regulatory and Development Authority (PFRDA) stands as a statutory regulatory body, instituted under the provisions of the Pension Fund Regulatory and Development Authority Act of 2013.

Its primary mandate revolves around the supervision and governance of the National Pension System (NPS), serving as the regulatory authority for India's pensions sector.

Historical Background of the Pension Fund Regulatory and Development Authority (PFRDA)

Transition from Defined Benefit to Defined Contribution System

• The decision to switch from a defined benefit to a defined contribution pension system for all new Central/State Government employees, excluding those in the armed forces, was based on the recommendations of the Old Age Social and Income Security (OASIS) report.

 Establishment of Interim Regulatory Authority (IPRDA)

• In response to the need for regulatory oversight in the evolving pension landscape, the Interim Pension Fund Regulatory and Development Authority (IPRDA) bill was passed by the Union parliament in February 2003.
• IPRDA was tasked with promoting, developing, and regulating the pension system in India until a permanent regulatory framework could be established.

Temporary Measure for Regulatory Framework

• IPRDA was introduced as a temporary measure to address the need for a regulatory framework until a comprehensive and fool-proof system could be formulated and implemented. This temporary measure was crucial to ensure continuity and stability in pension regulation.

Establishment of Permanent Regulatory Authority (PFRDA)

• The final regulatory authority, the Pension Fund Regulatory and Development Authority (PFRDA), was constituted with the President's approval on September 19, 201PFRDA became a permanent Act, replacing IPRDA.
• PFRDA was designed to oversee and regulate the pension sector in India with a focus on promoting transparency, efficiency, and investor protection.

Transition to Autonomy

• Initially, PFRDA operated under the guardianship of the President until the Financial Year (FY) 2014-15.
• Following this period, PFRDA attained complete autonomy and began functioning independently. This transition to autonomy was aimed at enhancing the effectiveness and independence of the regulatory authority.

Functions and Responsibilities

Regulatory Oversight

• PFRDA serves as a legislative body established by Parliament to regulate, promote, and ensure the orderly expansion of the National Pension System (NPS) and pension schemes covered by its jurisdiction.
• Similar to regulatory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), and the Insolvency and Bankruptcy Board of India (IBBI), PFRDA exercises executive, legislative, and judicial powers.

Administration of Pension Schemes

• PFRDA plays a pivotal role in administering and regulating the National Pension System (NPS), a voluntary, contributory pension scheme for employees in India's organized and unorganized sectors.
• Additionally, PFRDA administers the Atal Pension Yojana (APY), a government-initiated pension scheme aimed at providing pension benefits to workers in the unorganized sector.

Appointment of Intermediaries

• As part of its regulatory functions, PFRDA appoints and oversees various intermediary agencies involved in the administration and management of pension schemes.
• This includes Pension Fund Managers (PFMs) responsible for managing pension fund investments and the Central Record Keeping Agency (CRA) tasked with record-keeping and administration of subscriber accounts.

Development and Supervision of Pension Industry

• PFRDA is entrusted with the responsibility of developing, promoting, and supervising the pension industry in India.
• It formulates policies, guidelines, and regulations to ensure the effective functioning of pension schemes, safeguarding the interests of subscribers, and promoting transparency and efficiency in the pension sector.

Promotion of Pension Awareness

• In addition to regulatory functions, PFRDA undertakes initiatives to enhance awareness and understanding of pension schemes among the general public.
• Through educational campaigns, seminars, and outreach programs, PFRDA aims to promote financial literacy and encourage individuals to plan for their retirement through pension schemes like NPS and APY.

What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) stands as a significant social security initiative introduced by the Central Government of India. It serves as a retirement savings platform aimed at providing financial security to individuals during their post-retirement years. 

Key features of the NPS

• Inclusive Participation: The NPS is open to employees across various sectors, including public, private, and unorganized sectors, except for those serving in the armed forces. This inclusivity ensures that individuals from diverse employment backgrounds can avail of pension benefits.
• Encouragement for Savings: The core principle of the NPS revolves around encouraging individuals to contribute a portion of their income regularly into a pension account throughout their working years. This disciplined approach to saving ensures the accumulation of a substantial corpus for retirement.
• Withdrawal and Pension: Upon retirement, subscribers are entitled to withdraw a predetermined portion of the accumulated corpus as a lump sum. The remaining amount is then utilized to provide a monthly pension to the retiree, ensuring a steady income stream during retirement years.
• Beneficial for Private Sector Employees: Particularly beneficial for employees in the private sector, the NPS offers a reliable avenue to secure a monthly pension post-retirement, thereby enhancing financial stability and well-being in old age.
• Portability and Flexibility: One of the key advantages of the NPS is its portability across different jobs and locations. This means that individuals can seamlessly continue their NPS contributions irrespective of job changes or relocations, ensuring uninterrupted pension accumulation.
• Tax Benefits: Subscribers to the NPS can avail of tax benefits under various sections of the Income Tax Act, including Section 80C and Section 80CCD. These tax incentives serve as additional incentives for individuals to invest in the NPS and secure their financial future.

What is Atal Pension Yojana (APY)?

Atal Pension Yojana (APY) is a pension scheme primarily aimed at providing financial security to unorganized workers, such as domestic helpers, gardeners, and delivery personnel, during their old age. 

Key features and highlights of the Atal Pension Yojana

• Replacement of Swavalamban Yojana: APY was introduced as a replacement for the Swavalamban Yojana, which did not receive widespread acceptance from the public. The revamped scheme aims to address the shortcomings of its predecessor and provide more comprehensive pension coverage.
• Universal Security: The overarching objective of APY is to ensure that every Indian citizen, irrespective of their age or occupation, has access to financial security in the event of illness, accidents, or diseases. It aims to provide a sense of stability and assurance to individuals during their post-retirement years.
• Inclusive Eligibility: APY is open to a wide range of individuals, including employees in the private sector and those working in establishments that do not offer pension benefits. This inclusivity ensures that individuals from various employment backgrounds can avail themselves of the scheme's benefits.
• Flexible Pension Options: Subscribers to APY have the flexibility to choose from different pension amounts, ranging from Rs 1000 to Rs 5000 per month, based on their contribution levels and age at the time of enrollment. This allows individuals to tailor their pension benefits according to their financial needs and aspirations.
• Pension Determination: The pension amount under APY is determined based on the individual's age at the time of enrollment and the contribution amount made towards the scheme. This ensures that pension benefits are calculated in a fair and transparent manner, taking into account the subscriber's specific circumstances.
• Spousal and Nominee Benefits: In the event of the subscriber's demise, their spouse is entitled to claim the pension benefits. Furthermore, if both the subscriber and their spouse pass away, the accumulated corpus is transferred to the nominee designated by the subscriber, ensuring continued financial support for their dependents.

Conclusion

The Pension Fund Regulatory and Development Authority (PFRDA) serves as a pivotal regulatory body, overseeing the National Pension System (NPS) and Atal Pension Yojana (APY) in India. Through its establishment and evolution, PFRDA has played a crucial role in transitioning from defined benefit to defined contribution pension systems, ensuring regulatory oversight, administering pension schemes, appointing intermediaries, and promoting pension awareness. Meanwhile, the NPS and APY stand as significant social security initiatives, providing inclusive participation, encouraging savings, offering withdrawal and pension benefits, ensuring portability and flexibility, and providing tax incentives. Together, these initiatives aim to address the diverse retirement needs of individuals across various sectors, enhancing financial security and well-being in their post-retirement years.