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Wednesday, Apr 03, 2002

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SEBI may be chosen to be pension regulator

Shaji Vikraman
Sarbajeet K. Sen

NEW DELHI, April 2

IN a change of stance, the Government has proposed to mandate the capital markets watchdog — the Securities and Exchange Board of India (SEBI) — to regulate the pension sector.

The proposal is to be placed before the Group of Ministers (GoM) on pensions for its assent, according to senior Government officials.

The move to rope in SEBI, which seemed to be nowhere on the pensions horizon till the other day, not only runs contrary to the earlier thinking within the Finance Ministry to nominate the Insurance Regulatory and Development Authority (IRDA) to regulate the pension market, but also goes against the recommendations of the pension reforms report of the S.A. Dave Committee (OASIS report) and that of IRDA itself.

While the Dave Committee had suggested an independent regulator body to be called the Indian Pensions Authority (IPA), IRDA report had made out a strong case for itself.

However, after extensive discussions the Government seems to have made up its mind to mandate SEBI as it is reckoned to be the most suited for the purpose of providing direction to pension reforms.

Especially, since some of the existing capital market players such as asset managers would also have a large involvement in the pension sector as professional fund managers.

Moreover, the kind of products that are to be offered by fund managers and the investment from these funds are also to be largely directed at listed securities, both equity and debt, which are already under the regulatory ambit of SEBI. Pension schemes are expected to be operated on lines similar to some of the existing mutual fund schemes run by the asset management companies.

The presence of Mr G.N. Bajpai as the new SEBI chief could have also had a major bearing on the decision to provide the GoM with the option of SEBI for the pension market. Given his long association with the Life Insurance Corporation (LIC), which he headed for two years prior to taking over charge at SEBI, Mr Bajpai has considerable hands-on experience of the existing pension and annuities market in the country.

In fact, the major role of life insurance companies in the new pension set-up was one of the reasoning put forward by IRDA for having itself nominated as the regulator for the integrated pension market. The authority had said since life insurance companies are to be the only players in the annuities (monthly pension payout) market, nearly half of the future pension market would be under IRDA's fold ab initio. According to the report, payment of annuities account for nearly 50 per cent of the activity in the pension market.

IRDA had also pointed out that international experience also supported an integrated regulator for both the sectors.

"The overwhelming consensus in the International Association for Insurance Supervisors (IAIS) is that since both insurance and pension are regulated by the same regulator in most countries, due to similarities in the sectors, there should be a total synchronous development of regulation in both these areas," the IRDA report has said.

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