Pension regulator need of the hour: Swarup

The long-awaited legislation to set up a statutory pension fund regulator will now have to wait till the monsoon session of Parliament, even as there is a crying demand for early passage of the PFRDA Bill, with several pension schemes by mutual funds and insurance companies already hitting the market.

There is a strong case for a passage of the PFRDA Bill that gives statutory powers to the regulator so that the schemes start operating in a regulated environment, Interim Pension Regulator D Swarup said.

"If there is a demand for pension schemes, the market will ensure that this demand is met. Instead of these schemes coming up in an unregulated environment, it is better to regulate them. The PFRDA Bill will ensure this," he said.

The PFRDA Bill has already been vetted by the law ministry and recommended by the standing committee of Parliament on finance.

It is now ready to be presented to Parliament, incorporating the recommendations of the standing committee, including the proposal to have a risk-free pension scheme in which contributions could only be invested in government securities.

The PFRDA Bill could not be introduced in Parliament as the May session was short. Also, the government is keen to evolve a consensus with Left parties before it is brought for passage in Parliament.

Mutual funds companies like UTI MF and insurance companies like ICICI Prudential already have pension products in the market.

Though mutual funds are regulated by market regulator Sebi and insurance companies by IRDA, there was a need for a specialised pension regulator, Swarup said, adding that his viewpoint was supported by IRDA Chairman CS Rao.

The new pension scheme was launched by the government for its employees joining services after January 1, 2004. Subsequently 16 states have introduced NPS, which has only defined contribution and not defined benefit unlike in the earlier scheme.

The yearly accretion of the contribution to the NPS is about Rs 500 crore. As per the PFRDA proposal, there would be at least one pension fund in the public sector.

But LIC, SBI and UTI MF have evinced interest in entering the pension sector, Swarup said. ICICI, Aviva and HDFC have also shown interest, he said.

As per the earlier proposal, there would be just six companies in the pension sector to start with. However Swarup said all those qualifying PFRDA's stringent conditions like minimum paid-up capital, track record, electronic connectivity, countrywide reach and those meeting cost parameters, could be licensed.

Companies should have "reasonable" assets under management as margins in this business were thin, he added. Considering this, there would not be a large number of companies in the pension sector to start with, he said.

Advocating that pension schemes require specialised regulator, Swarup said, "New pension system plans provide much more flexibility and safety to the subscribers than the existing schemes."

He said investors to pension funds could switch over from one scheme to another within one pension fund as well as from one company to the other in between

To provide this flexibility, only those companies, which have electronic connectivity will be licensed. Besides, only those collection centres would be allowed that have this facility, Swarup said.

Swarup said the department of posts would be involved in a big way as collection centres for pension fund because of its reach.

As per the proposed scheme, a subscriber could deposit his money at any collection centre at any place since all those would have electronic connectivity, he said. Existing pension products will have to comply with new regulations.

While ULIP schemes of mutual fund companies and insurance companies invest in individual stocks, they would not be able to do so under the PFRDA Bill as it limits equity option to index funds only. While index funds do not provide as much returns as individual equities, they are not as prone to volatility.

Swarup made it clear that pension funds are not meant for the people below poverty line. These funds will cater to the people with disposable incomes to invest, he added. Safety nets to BPL people are being considered and should be provided through the Budget, he added.

The interim pension regulator said he did not ask for any special tax sops for pension funds, but at the same time any existing tax benefits given to provident funds be also extended to pension schemes.

The government is mulling over whether to switch over to taxing provident funds at the time of withdrawal instead of current scheme of giving exemptions at the time of savings, interest accretion and withdrawal.