The law took eight years to make it through the Lok Sabha and was passed after the main opposition party, BJP, came around to support it.
The pension bill is one of two key financial sector reforms beset by political differences. Finance Minister P Chidambaram and Parliamentary Affairs Minister Kamal Nath met BJP veteran L K Advani and other opposition leaders earlier on Wednesday to seek their cooperation on the bill.
The law will allow setting up of companies that can offer pension and have 26 per cent foreign direct investment. The cap will, however, follow the limit in the insurance sector and would be increased to 49 per cent when the Insurance Laws (Amendment) Bill is passed by Parliament.
The PFRDA Bill was introduced in Parliament in 2005 but lapsed after the the term of the house ended. It was re-introduced in 2011 and received fresh Cabinet approval last October. Since the bill is a money bill the upper house has only a recommendatory role to play.
However, a regulator was set up in the interim through an executive order. The National Pension System has been operational since 2004 and is mandatory for all central government employees who joined service from January 2004. Twenty-six state governments have also signed the scheme and the NPS was opened to everyone in 2009.
As on August 14, 2013, NPS had 52.83 lakh subscribers and a total corpus of Rs 34,965 crore.
Piloting the bill through the house, Chidambaram said the government has accepted all but one recommendation of the standing committee on finance. The proposal to allow members to withdraw contributions mid-way through the scheme was not accepted.
With the passage of the bill, subscribers will be given minimum assured returns on specific notified schemes. They will also get the option of market-linked schemes through investment choices such as equities, government bonds and corporate paper depending on their risk appetite. The law also provides that at least one of the pension fund managers shall be from the public sector.