Who will regulate pension products?

Insurers and mutual funds continue to sell pension products outside PFRDA’s watch creating confusion among consumers. File Photo

Finance Ministry sets up committee to streamline regulation amid confusion over supervision.

The Finance Ministry has set up a high-level committee to consolidate the regulation of pension products that is currently being done by three different watchdogs including the insurance and stock market regulators.

Creating confusion

While the Pension Fund Regulatory and Development Authority (PFRDA) was set up with the intent of regulating all pension products, insurers and mutual funds continue to sell pension products outside its watch, creating confusion among consumers looking to build a retirement nest egg. The move to set up a panel was made after the issue was flagged at recent meetings of the Financial Stability and Development Council chaired by Finance Minister Arun Jaitley.

Pension products floated by insurance companies come under the purview of the Insurance Regulatory and Development Authority (IRDA) while those sold by mutual funds are overseen by the SEBI.

“Right now, (pension product regulation) is piecemeal,” PFRDA Chairman Hemant Contractor told The Hindu in an interview. “And I don’t know how much attention, say, a SEBI would be paying to pension products. Their attention would be on mutual funds and capital markets, and IRDA’s focus would be more on insurance. Pensions would be an incidental thing for them. If it were under us, then that would be our prime focus.”

The Centre has “formed a committee to look into the issue of bringing these companies which are offering pension plans under the purview of PFRDA,” Mr. Contractor said, adding that while the committee has been set up, deliberations are yet to get under way.

The amounts in question are sizeable. IRDA had Rs.3.9 lakh crore in pension, general annuity, and group superannuation funds, and Rs.22.5 lakh crore in unit-linked funds, some of which also have a pension component, as of March 31, 2015. The two main pension plans operated by mutual funds regulated by SEBI — UTI and Franklin Templeton — manage about Rs.2,400 crore. The total corpus under the National Pension Scheme (NPS) is about Rs.1.45 lakh crore.

• “The PFRDA Act says we will be the pension regulator in the country,” Mr. Contractor said.
• “Barring EPFO (Employees’ Provident Fund Organsiation), we are supposed to be the regulator for the entire pension industry in the country. But the ground level reality is that the schemes floated by insurance companies and mutual funds still exist and are not regulated by us.”
• The committee to be formed by the Department of Financial Services, would have representatives from all financial sector regulators — SEBI, IRDA, RBI and PFRDA.

‘Nobody fiddling’

“It is not clear whether a single regulator will do a better job, since pension products are pretty straightforward,” Dhirendra Kumar, CEO, Value Research said.

“The regulator has to see that nobody is fiddling with the money, that they are following the guidelines, are not expensive, and that the money is managed well. In this, PFRDA is doing an exceptional job, and SEBI is doing a good job.”