Regulatory Authority for pension fund favoured

MUMBAI, NOV. 17. The union government should set up a regulatory authority for pension funds with specific functions for its proper growth, chairman of Insurance Regulatory and Development authority of India, Mr. N. Rangachary, said today.

``We feel that there should be a regulator first to supervise the entire pension fund system and prudential regulations be put in place', Mr. Rangachary said, addressing a seminar on pension sector reforms organised by Federation of Indian Chamber of Commerce & Industry here.

The regulator could be entrusted with various functions to decide on how and at what pace the pension funds should grow, he added.

Referring to the IRDA report on pension reforms in the `unorganised sector' submitted to the Finance Ministry on October 31, he said ``The earliest we can install a system is 10-12 months''. However, if some regulatory changes were necessary, then it would take more time - two to three years.

IRDA, in its report, has suggested that the annuity receipts should be exempted from taxes, he said.

``We have opted for no cap on number of pension providers and a selection process for providers, which are two issues different from the recommendations in the oasis (old age security and income system) report'', the IRDA chief said.

In the prevailing environment, investment of pension funds in equity was not advisable, he said.

The committee has also indicated that investment in index funds is a viable option, where one feels, that volatility gets properly regulated, Mr. Rangachary added.

He said pension funds management consists of four integral parts - collection, administration, investment and payout stage, which should be exclusively reserved for insurance companies. Prospective pension fund managers should have good track record, knowhow and be financially sound, among other things.

He said the cost of initiating the process should be borne by the Government or the regulator while cost of implementing and marketing the schemes has to be taken up by the providers.

``We are also concerned about the transaction costs, which in initial stages is bound to be high," Mr. Rangachary said, adding, there would be ceiling on cost.

Central provident fund commissioner Mr. Ajai Singh said ``Our goal is to cover 50 million people in three to four years and 70- 80 million in eight to 10 years. ``We also need to reform the employee provident fund to cover about 80 lakh people by end of the next year'', he added.

FICCI past president Mr. A. S. Kasliwal said India has an estimated 314 million workers of which a mere 11 per cent were covered by the formal pension system. The existing pension system for a small amount of working population based on defined benefit formula adds on heavily to the state's fiscal deficit. In fact, it is estimated that if the present system were to continue then in a decade's time the pension expenditure of the government would exceed over five per cent of the gross domestic product, he added.

- PTI

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