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Pension Fund Regulatory Development Authority

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September 05, 2018

What is the issue?

  • Pension Fund Regulatory Development Authority completes five years of functioning,
  • It is imperative at this juncture to reflect on its success, shortcomings and the way ahead.

What is PFRDA?

  • The interim PFRDA was established in 2003.
  • This was to oversee the National Pension System (NPS), and regulate India’s pensions sector.
  • The interim PFRDA transitioned into the PFRDA with the passage of Pension Fund Regulatory Development Authority (PFRDA) Act, 2013.
  • PFRDA has come a long way, but there are still some gaps in India’s pension regulatory framework.
  • Significance - The PFRDA Act is the linchpin of India’s pension regulatory framework.
  • The Act is being supplemented by regulations issued by the PFRDA.
  • They regulate the functioning of key intermediaries under the NPS framework.
  • These include the NPS Trust and the Pension Funds and Points of Presence (PoPs).

How has the NPS evolved?

  • The National Pension System (NPS) was introduced in 2003.
  • Concerns of inadequate coverage and fiscal unsustainability of traditional civil-servant pensions led to NPS's creation.
  • The NPS was visualised as a defined-contribution pension scheme.
  • It had features including individual pension accounts, multiple pension funds, etc.
  • Initially, NPS covered only government employees.
  • It was extended to all citizens by 2009, barring members of the armed forces.
  • Subsequent reforms focused bringing India’s vast unorganised sector workforce into the NPS net.
  • In this line were introduced a simpler variant of NPS, ‘NPS-Lite’ in 2010.
  • Likewise, the ‘Swavalamban’ scheme was introduced in 2010.
  • Under this, the government co-contributes to the pension corpus of unorganised sector workers not covered by social security schemes.
  • Similarly, the ‘Atal Pension Yojana’ was introduced in 2015.
  • In this, the government guarantees a minimum post-retirement monthly pension.
  • It also extends co-contribution benefits to unorganised sector workers.

What are the concerns with PFRDA?

  • NPS - A major concern in India’s pension regulatory framework is a widespread lack of clarity.
  • E.g. being a regulator of the pensions sector, PFRDA is also responsible for promoting and developing the NPS
  • This gives rise to concerns of a potential conflict of interest.
  • It thus requires a clearer delineation of the PFRDA’s role, for greater regulatory accountability.
  • NPS Trust - NPS Trust is a critical intermediary in the NPS framework which -
  1. holds subscriber funds and assets in its custody
  2. implements PFRDA’s regulations
  3. supervises and monitors other intermediaries
  • It does these all remaining under the PFRDA’s supervision.
  • At present, the NPS Trust and the PFRDA possess overlapping and concurrent powers.
  • The powers are in relation to inspecting other NPS intermediaries.
  • This again lacks clarity, leading to accountability and conflict of interests concerns.
  • Act - The foreign shareholding limits for Indian insurance companies are currently 49%.
  • Also, the foreign exchange regulations cap foreign shareholding in the pensions sector at 49%.
  • But PFRDA Act caps foreign shareholding in Indian pension funds to be one of the higher from the following two - 
  1. 26% of the pension fund’s paid-up capital
  2. the limits specified for Indian insurance companies under the provisions of the Insurance Act
  • The choice from dual percentages as specified in the Act creates unnecessary confusion.
  • Consumer protection - NPS serves as a universal product securing citizens’ retiral incomes.
  • But there is an inadequate emphasis on financial consumer protection.
  • E.g. the web-based grievance portal for NPS subscribers allows complaints registration only in English.
  • There are similar concerns with the PFRDA (Redressal of Subscriber Grievance) Regulations, 2015.
  • It fails to specify clear grounds for approaching the office of the Ombudsman, functioning as the grievance redress authority.
  • Inadequate attention to consumer protection also reflects in the recent PFRDA (Points of Presence) Regulations, 2018.
  • PoPs are intermediaries and help in on-boarding subscribers to the NPS.
  • The Regulations require PoPs to maintain confidentiality of subscribers’ personal information.
  • But the regulations fall short of
  1. detailing specific standards of care required of PoPs
  2. expressly penalising PoPs who fail in protecting confidentiality
  • The absence of such safeguards undermines the protection of subscribers’ personal information.
  • Addressing these gaps and strengthening the underpinnings of India’s pensions framework should be a priority.

 

Source: BusinessLine

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