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The Central Government introduced a restructured new defined contribution pension system with effect from the 1st January, 2004 for all new recruits to the Central Government services (except for the armed forces in the first stage) replacing the earlier defined benefit pension scheme.
2. A legislative mandate was considered necessary as the New Pension System (NPS) was put in place without the full architecture and a statutory regulatory mechanism. Moreover, a non-statutory regulator would not have had sufficient powers over pension funds, the central recordkeeping agency or other intermediaries. Interests of subscribers could also not have been fully protected and management of mandatory and other contributions could not have been appropriately done without a statutory regulator.
3. Contributions are not being invested as envisaged under the NPS and are being credited, in the interim, into the public account, earning an administered rate of return equal to the rate on the General Provident Fund. Further, more than 40,000 new Central Government employees have already been mandatorily covered by the NPS since 1st January, 2004 and it became imperative to quickly replace the interim arrangements with proper infrastructure under a regulatory framework in order to avoid future complications. The first step in this direction was to establish a statutory regulator.
4. Seven State Governments, namely, Andhra Pradesh, Chhattisgarh, Himachal Pradesh, Jharkhand, Manipur, Rajasthan and Tamil Nadu have already notified and introduced defined contribution pension schemes and intend to join the NPS. Some of the other State Governments have also evinced interest in joining the NPS as and when its architecture and mechanism are in place.
5. In view of the urgency felt, the Pension Fund Regulatory and Development Authority Ordinance, 2004 (Ord. 8 of 2004) was promulgated by the President on the 29th December, 2004. The Ordinance provides for a statutory regulator for the pension sector on the lines of the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA). The Authority will have the responsibility of regulating, promoting and ensuring the orderly growth of the pension sector. The Ordinance, thus, provides for the establishment of an Authority comprising a Chairperson and five other members of whom at least three members shall be whole-time members. The Authority broadly has the similar powers as have been given to the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority in regard to their respective areas. The Securities Appellate Tribunal (SAT) has been given the appellate powers.
6. As Parliament was not in session and the President was satisfied that circumstances existed which rendered it necessary for him to take immediate action, the Pension Fund Regulatory and Development Authority Ordinance, 2004 (Ord. 8 of 2004) was promulgated on the 29th December, 2004.
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