The Hindu Business Line : Pension plans: Insurers seek in-house unit

A FRESH regulatory dilemma has popped up before those charting the course of pension sector reforms. The existing insurance companies have renewed their demand that they be allowed to offer pension products from within their ongoing insurance set-up if selected as pension fund managers (PFMs).

Official circles, however, feel that permitting an operational structure like this might lead to a fuzzy regulatory environment whereby a single entity would be required to report to two regulatory bodies.

"We have received representations from insurance companies that they be allowed to offer pension products from within their existing companies. We are trying to understand the implications of allowing such a practice. If we allow the insurance entity to have a unit offering pension products, then we would end up with a situation where there would be two regulators regulating a single company," senior officials said

While the Insurance Regulatory and Development Authority (IRDA) is the regulator for the insurance sector, the pension sector is to be regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

In their representation to the Government and PFRDA, a section of insurance companies has pointed out that the requirement of floating a new outfit with fresh capital investment to offer a limited number of pension products is unnecessary especially in view of the fact that insurance and pension products have several similarities in their features.

The officials said they are also looking at the impact on consumers if insurance companies are required to have a separate outfit for offering pension products. "We have to look at the impact on the cost of transactions while taking a decision on the issue," they said.

Life insurance companies and mutual funds are set to battle it out to grab a seat from the limited number of PFM slots that would be up for offer during the initial phase of the new pension structure. PFRDA has tentatively decided to cap the number of PFMs to nine, including one public sector entity. At present, the Government is working closely with PFRDA to evolve the minimum eligibility criteria for PFMs.

Big-time reforms for the pension sector are expected to be unleashed soon after the new Government assumes charge after the elections. It recently took the pension reforms process ahead by coming out with draft norms for setting up the Central Record-keeping Agency (CRA) for the sector. The CRA is crucial for the new pension structure since it would be the centralised body that would store and process pension data of individual subscribers who transact business with PFMs.

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