PFRDA sees stock boost; govt employees may get to invest 50% savings

India’s $2.3 trillion equity market has surged in recent years, and is about to get a new endorsement — from the nation’s pension regulator.

“We are pressing the government to increase the equity proportion for government employees, and expect a favourable response very soon,” Hemant Contractor, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), said in an interview. The PFRDA has called for a bump to 50 per cent, from 15 per cent — to match the maximum for private-sector pensions overseen by its National Pension System arm.

The equity culture in the country may also get a boost from a stewardship code to be rolled out for the country’s fund managers to push for corporate-governance best practices. The PFRDA, along with insurance and securities regulators, is pursuing the new code, Contractor said in New Delhi on Friday.

Contractor, who has headed the pension regulator since 2014, said the new code would help improve the professionalism of business management, with challenges ranging from the misuse of corporate funds to boards taking insufficient action when things go wrong.

Government employees contribute about 87 per cent of the Rs 2.3 trillion ($35 billion) overseen by the NPS, which started in 2004 and later opened to all citizens for voluntary contributions. The government also operates the Employees’ Provident Fund Organisation, which offers investors defined returns on savings. The contractor said his agency has pressed for legislation allowing workers to shift from that plan to the NPS.

The EPFO won approval last year to raise its equity exposure limit to 15 per cent from 10 per cent earlier, increasing competition for NPS. With interest rates trending lower, “equities, if managed properly, should provide that extra bit” of return, Contractor said. 

There's a great appetite for putting money in stocks, and one proposal under consideration is to boost the limit for non-government subscribers to 75 percent, he said, adding that the strategy does carry risk.

Pension funds from Japan to Australia have taken on greater risk over time, conferring increased volatility. Norway’s sovereign wealth fund said April 27 it lost $21 billion in the first quarter. In India, the appetite for risk may be less in a country where the 1.3 billion population doesn’t have social security coverage, and where savings have declined as a share of the economy from a peak a decade ago.