PFRDA considers issuing on-tap licences for pension fund managers

As of now, licences are to be renewed every five years

The Pension Fund Regulatory and Development Authority (PFRDA) was considering issuing on-tap licences to fund managers, against the current practice of coming out with request for proposals (RFPs) every five years. It is also planning to double the minimum capital requirement of pension fund managers, from Rs 25 crore to Rs 50 crore.

Hemant Contractor, outgoing chairman of the PFRDA, told Business Standard, “We will issue new RFPs for pension fund managers. So far it is every five years. Now, we want to make it ‘on-tap’. Anybody who is eligible could apply. Licences once issued would continue for life.”

Under the on-tap licensing policy, anyone can apply for a licence at any time of the year. Once issued, it is valid forever, unless the terms are violated.

Currently, there are eight pension fund managers — HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, LIC Pension Fund, Reliance Capital Pension Fund, SBI Pension Funds, UTI Retirement Solutions and Aditya Birla Sun Life Pension Management.

Contractor said the pension regulator was considering doing this after it comes out with guidelines on foreign direct investment (FDI), which the government has asked it to frame. “We are in the process of framing the guidelines. We will show it to the government before releasing it. It will clarify what constitutes as FDI. Both direct and indirect investments will be counted as FDI. It will help clarify things,” he said.

He said the PFRDA may show the guidelines to the government next week. “The government will give the final nod and then we will release it," he added. 

Asked whether the government can do this when the model code of conduct is in place, Contractor said it might take longer in that case. 

The pension sector follows broad insurance sector FDI rules. When the cap on FDI was raised to 49 per cent from 26 per cent in the insurance sector in 2014, the pension sector saw the same hike in the limit. 

On the capital, he said, “We think that pension funds should be more capitalised so that they can invest in infrastructure and building of capacities. Now, the funds managed are much more than when we started.” 

For instance, he said, SBI Pension Fund is managing more than Rs 110,000 crore. When it started, it was handling Rs 15,000-20,000 crore.  

He said the corpus under pension fund managers has grown to over Rs 320,000 crore against Rs 65,000 crore when these started. 

Asked about the recent statements by some political parties that they would replace the national pension system (NPS) with the old pension system (OPS), Contractor said there is a feeling in some government quarters that the earlier system was better.

“OPS was a non-contributory scheme. NPS is a contributory scheme. Under OPS, there was certainty about the amount of pension. It was certain that 50 per cent of your last drawn basic income would be your pension. Here it is not certain. It would depend on how the corpus has earned in the market,” he said.

However, he said, now people have come to realise that returns on NPS are quite high. “We have been able to generate almost 9.7 per cent compound annual growth rate since inception in 2004,” he said.