ENTITIES ARE REGULATED, NOT PRODUCTS: PFRDA CHIEF
The issue of regulating pension products of insurance firms and mutual funds will not snowball into a major turf war between watchdogs. This is because entities, not products, are regulated in India under the current regulatory framework, said Yogesh Agarwal, chairman, Pension Fund Regulatory and Development Authority (PFRDA).
"We have not reached a stage where products would be regulated. Only entities are regulated," said Agarwal told Business Standard. He said pension products offered by insurance companies would continue to be regulated by the Insurance Regulatory and Development Authority (Irda), while those offered by mutual funds would be regulated by the Securities and Exchange Board of India (Sebi)
Agarwal said he had not referred any issue about the turf war with other regulators to the Financial Stability and Development Council (FSDC).
When contacted, Irda Chairman J Harinarayan also said he was not aware of any such matter referred to FSDC. "First, one needs to go through the PFRDA Bill properly. It does not make any sense," he said.
The PFRDA Bill, tabled in Parliament last month, seeks to empower PFRDA to regulate the New Pension System (NPS) and to carry out promotional, developmental and regulatory functions related to pension funds.
"There is no such provision in the (PFRDA) Bill which could bring pension plans offered by the insurance companies under the purview of PFRDA," said a senior Irda official. Pension plans accounted for more than 30 per cent of sales for life insurance companies till the new regulations, based on guaranteed returns, were introduced by Irda in September 2010.
Sebi regulates mutual funds, which manage over Rs 1,000 crore of assets under pension funds.
Agarwal was quick to say NPS (regulated by PFRDA) would attract subscribers from pension systems offered by others.
"You have already seen a decline in the contribution of pension schemes offered by insurance companies because now, you have a very scientifically-designed product in the NPS. Already, there is a move among the people to shift (to NPS). NPS is seen as a much superior product. Financial analysts are saying that. It is also the best financial product available in the market. I see a very significant movement from those products to NPS," he said, adding other products were flourishing in a period when the NPS was not introduced.
He said once the benefits of NPS would be available, particularly taxation benefits introduced in Budget, 2011, it would be clear to everyone that NPS was the best pension product available in the market. Budget 2011 provided for deducting an amount equal to the contribution to employees' NPS from an employer's business income, if it did not exceed 10 per cent of employees' salary in the previous year.
NPS was introduced for central government employees from January 1, 2004. Employees who had joined central government services since that date had to choose NPS. Unlike the old pension system, even though there are no assured benefits, there is a defined contribution from employees under the NPS. Till now, 27 states and union territories have notified the NPS. The government had also extended NPS to every citizen on a voluntary basis.
If case a turf war on pension products breaks out between the PFRDA and Irda or Sebi, it would be the second major row over jurisdiction. A spat between the insurance regulator and the market watchdog had broken out last year over the regulation of unit-linked insurance products (Ulips), following which, the government had to issue an ordinance empowering Irda to regulate Ulips.
-Courtesy – Business Standard, dated – 19.04.2011
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M.Krishnan
Secretary General NFPE
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