Marketing agents mooted for pension policies

The Pension Fund Regulatory Development Authority (PFRDA) is considering allowing pension fund managers to appoint marketing agents to sell pension policies.

The re-think is surprising considering the initial position taken by the finance ministry that pension fund managers should not deal with individual customers.

Instead, pension funds were supposed to restrict their marketing operations to advertisements, explaining the benefits of the specific funds on offer.

The ministry had based its position on the premise that contributors to the pension business would be fairly untutored government employees or self-employed people from the unorganised labour force.

There was a possibility that such people could be easily lured by pension fund managers to develop their business.

Besides, the high cost of fund management involved in such cases could eat into the final benefit package of contributors at the time of their retirement.

However, the latest consultation paper on the operational framework and selection process for pension fund managers prepared by the Invest India Economic Foundation, consultants to the finance ministry, says they will be free to engage and compensate individual retirement advisors, distributors and agents.

Not only that, the Central Record-keeping Agency, which will act as the clearing house for the pension architecture, will furnish to each pension fund manager a list of the names of people who subscribe to its pension fund.

This implies that agents will be in direct touch with contributors to obtain their subscriptions.

In their interaction with the industry, ministry officials had warned about this very danger. They pointed out the experience of several Latin American countries, which showed that pension fund managers used a large number of freebies to mislead contributors to switch their portfolios.

Officials said not too much should be read into the draft proposals as PFRDA and the department of economic affairs were yet to come out with the final policy position.

The only rider offered by the consultation paper is that pension fund managers must disclose the sales commissions paid to these intermediaries to the PFRDA to ensure that there was a fair competition among various funds. Apart from this, agents and individual retirement advisors will be required to pass a certification examination mandated by PFRDA.

This is in line with the practice instituted by the Insurance Regulatory Development Authority to ensure that there is a certain level of quality among agents and retirement advisors.

The Central Record-keeping Agency will do the actual fund transfer among pension fund managers based on the decision by the pension contributors. At the end of the day, a pension fund manager will get a large value cheque for the aggregate contribution made by contributors.

Pension roadmap

• Pension fund managers will be free to engage and compensate individual retirement advisors, distributors and agents
• Agents will be in direct touch with contributors to obtain their subscriptions
• Pension fund managers must disclose the sales commissions paid to their intermediaries