Enactment brings optimism to industry

Number and quality of products, with accountability for these, should change for the better

 

The passage of the Pension Fund Regulatory and Development Authority (PFRDA) Bill, or the Pension Bill, in the Lok Sabha, would make things much easier for the pension industry.

Those in the sector say there will be more and quicker product innovations. It would help build a social security platform for senior citizens, which is lacking.  

The Bill provides for establishing a statutory Pension Fund Regulatory and Development Authority (PFRDA) to promote old-age income security, and to protect the interests of subscribers to the various schemes of pension funds. The Bill empowers PFRDA to regulate the National Pension System (NPS) and schemes not covered under any other Act, register and regulate pension funds and the central record keeping agency. (WHAT THE PASSAGE OF THE BILL MEANS)

Anil Ghelani, business head and chief investment officer, DSP BlackRock Pension Fund Managers, says, "The Bill has a progressive and forward-looking approach. Since India does not have a social security scheme, the Bill will enable PFRDA to have a robust social security platform in place through its pension products.”

PFRDA exists as an entity but is under the finance ministry and lacks statutory powers. The Bill would give it legal status.

Sumit Shukla, chief executive officer, HDFC Pension Management Company,  explains: “It will give PFRDA the power to take decisions on its own. With regulatory power, there will be more customer confidence in the products it endorses. It will help push NPS in the market. Further, this would enable PFRDA to have more categories of investment under NPS to suit the needs of different customers."

Yogesh Agarwal, chairman of PFRDA, had earlier pegged the number of NPS subscribers at 5.2 million, with about 850 companies and a corpus of Rs 35,000 crore, which doubled every year.

With the passage of the Bill, PFRDA will be empowered to frame investment guidelines for pension funds and levy monetary penalties for violations of the provisions. A senior official from a pension fund company said, "Once the NPS is regulated, it won't have to go to the finance ministry for any approvals. PFRDA can set up its internal board for decisions on regulations and products. As of now, the upper limit to invest in equities is just 50 per cent, as compared to 100 per cent in corporate bonds and government securities."

Experts said there are chances that the equity exposure limit might also be increased to 100 per cent from 50 per cent. Or, the investment made in equities can be linked to the fund manager with whom funds are parked. All pension or retirement-based funds and products will come under the ambit of PFRDA. Regulating the Central Record Keeping Agency (CRA) will improve the quality of data maintenance and give easy accessibility, too.

PFRDA was established by the central government in August 2003 to promote old-age income security by establishing, developing and regulating pension funds.

NPS is the main product under the regulator, offered to both public and private sector employees.

CRAs, annuity service providers and pension fund managers distribute NPS. According to the new Bill, all of these will be answerable to the regulator and could be awarded penalties for any malpractices.

 “While increase in FDI in the pension sector is also being talked about, since the requirement of capital in the pension sector is lower than the insurance sector, increasing the FDI cap in pension from 26% might not result in a large inflow of foreign capital," added Ghelani.