After years of waiting, finally there seems to be hope for the passage of the Pension Fund Regulatory and Development Authority Bill, thanks to the Left's withdrawal of support from the government.
The passing of the Bill will provide statutory backing to the regulatory agency, enabling it to issue guidelines and allow non-government employees to save for the long-term. PFRDA Chairman D Swarup spoke to Business Standard about the issues involved. Excerpts:
How hopeful are you of the PFRDA Bill being tabled in the forthcoming session?
I am very hopeful that the Bill will see the light of day, sooner than later, and we will be able to issue the necessary guidelines.
How long will it take for you to notify the rules and allow more fund managers?
The waiting (for the passage of the Bill) has been a blessing in disguise. We have done the groundwork; we have opened up the sector for government employees. The scheme for central government employees is running, while 19 states are in the process of signing contracts with the intermediaries.
The entire architecture of the new pension scheme is in place with National Securities and Depositories as the central registry agency, three public sector fund managers, Stock Holding Corporation of India as the custodian and Bank of India as the trustee bank.
How fast can you scale up and get more fund managers into the system?
The software is in place and scalable. We will have to appoint a few more fund managers, for which a process of competitive bidding has to be followed. It should take us four months to complete this process and two months for them to roll out services.
So we can have more players in six months from the time the law is in place.
What about the eligibility criteria and how many more players will come in?
We have no numbers in mind, but the eligibility criteria will remain the same. Today, the funds are pooled and PFRDA allocates it to fund managers.
The returns are also pooled and distributed at the end of the year. Once the law is in place, individuals will decide on the scheme and the fund manager. When the licence comes up for renewal, which is every year, apart from the cost, the returns that they offer will also be factored in.
What about the investment options?
The menu of choices will be provided by the regulator and it will depend on the fund manager's expertise to maximise the returns.
At the moment, we have entered into contracts with the three fund managers and have allowed them to invest 85 per cent of the corpus in fixed-income instruments and the remaining 15 per cent in equities.
The norms are the same as for non-government provident funds.
What are you doing about dealing with consumer grievances?
Our board has discussed the issue in detail and we want to put in place a financial education system that people are fully aware of. What the board has decided is that the CRA will be the nodal agency, a single point, for all grievance redressal.
If a complaint is not sorted out within 30 days, people then can approach PFRDA. We have also constituted an independent board of trustees, comprising eminent people. It will be the first line of supervision, while PFRDA will be the regulator.
There will be a board of trustees even though we plan to get more fund managers. It will do exceptional reporting to the regulator.
Beyond the statutory prescriptions, will pension funds be an attractive investment proposition compared to provident funds?
It will depend on the demonstrative effect, which will be known at the end of the year when we declare the returns. If people find our system more attractive, they will consider the option.
Hopefully, that will happen a few years down the line because of the convenience that we can offer since your account will stay with the CRA even if you move from one city to another or switch jobs. You can change your investment option by clicking online.
What about investment options, since the long-tenure paper is not available in abundance?
There is no great demand for the long-term paper. The bond market is not fully developed, but if there is a demand, it will automatically develop.
Also, it is in the government's interest to have the long-tenure paper. Initially, fund managers may face some problems, but they will invest in 7-10-year paper and the rollover. But sooner or later, long-tenure paper will be available. The pension business will provide long-term money, which the infrastructure sector needs.
There are suggestions of restrictions on overseas investment. How will that affect the business?
I do not see that as a constraint because there are enough instruments available domestically to absorb the funds.
There are tax issues too.
Yes. We want a level playing field like the other savings instruments. SchemeS like the Public Provident Fund and those of the Employees Provident Fund Organisation are exempted from taxes at all stages, while pension funds are subjected to tax at the withdrawal stage.
There should be a level playing field.
