The Hindu Business Line : Pension players: Govt to guard against mid-course failure

As part of the ongoing pension reforms, the Ministry of Finance is working on plans to plug all possibilities of any mid-course failure of pension fund managers (PFMs) and annuity providers in the system.

The Ministry of Finance is specially concerned in view of the massive gestation period of a subscriber's pension contribution in the system. The accumulation, investment and the payout stages would involve the subscriber tracking his funds over several decades which would easily be one of the longest among all investments avenues available to an individual.

"Apprehensions have been expressed over the possibility of pension fund managers or the annuity providers going bust and the impact of such an eventuality on the pension subscribers. We are looking at ways to guard against any such possibility," a senior Finance Ministry official said.

This, in effect, would mean that PFMs could have stiff minimum capital requirements and solvency margins set for them. Moreover, the existing solvency requirements of life insurance companies, who would be the annuity providers in the proposed pension structure, might also be tightened. Similar concerns had been expressed at the time of insurance reforms when the Government had decided to dismantle the protected insurance sector and allow private sector participation.

In view of this, the Insurance Regulatory and Development Authority (IRDA) had imposed strict solvency margins that had been revised upwards subsequently, besides the Rs 100 crore minimum capital requirement for all insurance companies.

However, no decision on the minimum capital requirement of PFMs has so far been taken, though the market players are expecting it to be around the same level as prescribed for insurance companies.

While the existing life insurance companies would be the ones handling the payout stage through annuities in the pension cycle, the new structure is set to take off with nine PFMs, of which one would be a public sector entity.

The ongoing pension reforms are expected to gain momentum in the days to come with the Government constituting a full-fledged Pension Fund Regulatory and Development Authority (PFRDA) replacing the interim body.

The setting up of the Central Record-keeping Agency to handle pension transactions on a centralised platform is also to be completed within a few of months.

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