PFRDA chairman Hemant Contractor. (Abhijit Bhatlekar/Mint)
PFRDA chairman Hemant Contractor. (Abhijit Bhatlekar/Mint)

PFRDA set to frame FDI norms in pension fund sector

  • The proposed guidelines are expected to be finalized in a week, before they are cleared by govt, says PFRDA chairman Hemant Contractor
  • PFRDA may also allow higher commission for financial institutions and permit post offices to sign up subscribers for pension products

NEW DELHI: New Delhi: The Pension Fund Regulatory and Development Authority (PFRDA) is set to issue guidelines on foreign direct investment (FDI) in the sector, chairman Hemant Contractor said. PFRDA may also allow higher commission for financial institutions and permit post offices to sign up subscribers for pension products.

The proposed guidelines are expected to be finalized in a week, before they are cleared by the government, Contractor said in an interview. These will also put to rest confusion on whether indirect foreign investments in a pension fund by an entity in which a foreign firm has investments should be counted as part of the 49% FDI cap applicable for the sector.

“The FDI policy for the pension sector is linked to the FDI policy for the insurance sector...For insurance and pension, FDI up to 49% is allowed. So we are also allowed 49%. The issue was about how to compute this 49%. Whether you take only direct investment, or you take direct and indirect investment, or you take only indirect," said Contractor, adding the new guidelines with clarifications will be announced shortly.

In 2015, the government allowed 49% FDI under automatic route for insurance and pension sectors, up from 26%.

The clarifications could attract global players to India and help develop new benchmarks of performance and growth in the pension sector, said Gopal V. Kumar, consulting pension actuary at Radgo & Co. Actuaries & Consultants. “Besides long-term capital, FDI also enables a firm to get a strategic partner with experience, know-how and understanding of the sector. FDI coming into the sector will also provide an exit opportunity for existing shareholders," said Kumar.

Currently, there are three public sector and five private sector pension fund managers—LIC Pension Fund, SBI Pension Fund, UTI Retirement Solutions, Kotak Pension Fund, Birla Sun Life Pension Fund, HDFC Pension Fund, ICICI Prudential Pension Fund, and Reliance Capital Pension Fund.

Regarding the proposal for higher commissions, Contractor said: “Commission for pension fund managers was tied to the new RFP (request for proposal). The new RFP was stuck because FDI policy for the pension sector was not very clear. So the government has not taken a call on how FDI policy for pension will be formed," he said. “We will come out with new RFP. In the new RFP, the method of computing charges payable to pension fund managers will be different from what exists now. It could be higher. Right now it is 0.01%."

Close