Money & Banking

PFRDA throws FDI door wide open for Pension Funds

KR Srivats New Delhi | Updated on July 18, 2021

Allows foreign companies to hold upto 74% stake in Pension Funds

The legal decks have now been cleared for foreign companies to hold — directly or indirectly — up to 74 per cent stake in pension funds with the pension regulator PFRDA notifying the new revised limit. Foreign investment limit in pension funds was earlier capped at 49 per cent.

The Pension Fund Regulatory and Development Authority (PFRDA) has for this purpose amended the Pension Fund regulations. This latest move comes on the heels of the pension regulator opening from June 30 an “on tap” window for grant of licences for pension fund managers. Such a window allows applicants to seek licence at any time, thereby quickening the entire process on setting up business.

In India, pension funds would have to necessarily operate as corporate entities.

With the latest move, the FDI limit in pension funds are aligned with that of insurance sector. In March this year, Parliament had given its approval for raising FDI limit in insurance sector to 74 per cent from 49 per cent. Finance Minister Nirmala Sitharaman had, in her Budget speech this year, announced an increase in FDI limit in insurance sector to 74 per cent from 49 per cent earlier.

It maybe recalled that the PFRDA Act links the FDI ceiling for the pension sector to the ceiling level prescribed for the insurance sector.

Prior to the latest PFRDA move, the regulations stipulated in the eligibility criteria mentioned that an applicant, for being a sponsor of a pension fund, cannot hold more than 49 per cent stake in the pension fund.

The FDI limit hike in pension funds comes at a time when India’s pension assets under management (AUM) are growing at a frenetic pace and touched ₹6.2-lakh crore, as of July 10 this year.

PFRDA Chairman Supratim Bandyopadhyay had in May this year said that PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end of March 2022.

In the last two years, PFRDA has been taking several steps to enhance the number of players in the pension sector. It had revamped the fee structure for pension fund managers and revised the capital requirement criteria for sponsors so that both of them are strong enough to ride the current growth wave in the pension sector.

A sponsor — individually or jointly — should now have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible net worth of atleast ₹50 crore on the last date of each of the preceding five financial years.

There are now eight Pension Fund managers for the National Pension System in the country — SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund Aditya Birla Sun Life Pension Management and Axis asset management (the most recent entrant and whose pension fund is yet to be operationalised).

PFRDA expects India’s pension sector assets to grow to ₹30 lakh crore by 2030 and this could be a good reason why more foreign pension fund management players could look “more seriously” at entering India in next few years, say pension industry observers. Also the fact that foreign companies can now have controlling interest in the pension funds in India will encourage them to enter this market, they added.

Published on July 17, 2021

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