Getting pension funds to invest in infra a challenge: Report

The long-pending Pension Bill was passed by the Lok Sabha on Sept 4, 2013

Channelling pension funds to the infrastructure sector will be a challenge given the high risk associated with the key segment, says a report.

"Convincing pension funds to invest in infrastructure as an asset class will be a challenge. There is need for a separate policy to address this aspect of risk perception," a State Bank of India research report said today.

The long-pending Pension Bill was passed by the Lok Sabha yesterday.

The total investment in the infrastructure sector in the 12th Plan (2012-17) is estimated at USD 1 trillion or Rs 66 trillion with contribution from both the debt and equity segments.

Of this, the pension funds are expected to contribute at least Rs 1.5 trillion in debt component.

"This estimated contribution by pension funds towards infrastructure is on the lower side given the potential for developing pension market in the country," the report said.

As on August 14, 2013, the number of subscribers under New Pension System (NPS) was 52.83 lakh with a corpus of only Rs 34,965 crore.

The total investment in infrastructure sector in the 12th Plan from the debt segment is projected at Rs 22.65 trillion.

Apart from pension funds, other financial sources from the debt segment for the sector include commercial banks - Rs 11.65 trillion; NBFCs Rs 6.19 trillion and external commercial borrowing at Rs 3.31 trillion, the SBI report said.

With the Bill's passage, the Pension Fund Regulatory and Development Authority will receive statutory status and also regulate NPS, a defined contribution scheme.

The main objective of the Bill, which paves way for 26% foreign investment in pension sector, is to provide a structure to plan for old age income security through NPS.

The legislation provides subscribers a wide choice to invest their funds, including for assured returns, by opting for the Government bonds as well as in other funds depending on their risk-taking capacity.