The Insurance Regulatory and Development Authority (Irda) has asked the Life Insurance Corporation of India (LIC), State Bank of India (SBI) and the Industrial Development Bank of India (IDBI) to work on the entire costing for the proposed pension reforms prior to the submission of its report to the government. This request comes in the wake of the administration proposed by the Association of Mutual Funds of India and the Indian Banks' Association, which are not in keeping with that identified by the OASIS (Old Age Social and Income Security) report.
The OASIS report had identified that the cost of acquisition, management and disbursements of pension contributions had to be managed within 0.25 per cent of assets under management and the real returns on an annual compounded basis to the investor should be 6 per cent.
The advisory committee for pension reforms headed by Irda chief N Rangachary, highlighted that integrated institutions on the likes of universal banks would be best capable to come out with a composite solution for an end to end management and servicing of pension funds across the country. The entire cost structure would incorporate acquisition costs to mobilisation expenses to managerial fees of funds. This would give the committee an indicative idea as the costs and return objectives laid down by the OASIS are not achievable, said Ashvin Parekh, a member of the advisory committee for pension reforms.
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SBI and its associate banks with their extensive branch network of 14,000 branches, would facilitate the collection and distribution of pension. Moreover, SBI Life Insurance Company would as per the Insurance Act be able to offer annuity products.
Even as the Reserve Bank of India (RBI) is not eager for banks to foray into pension fund management, "banks' involvement will stabilise the banking sector and returns expectation", said Ashvin Parekh, member of the committee.
SBI and LIC have been identified in the first rung of preference, followed by IDBI and then Housing Development Finance Corporation. An institution such as IDBI could create long-term assets which would be good for pension fund investment, said Parekh, adding that "index or flexi bonds linked with the bank rate will give the pension system a lot of stability."
Further, these institutions have proved their record keeping and asset management capabilities, he added.
On the sidelines of a seminar on Friday, Rangachary said that the committee had not foreclosed the concept of pension bonds. These he felt would solve the some of the basic problems of keeping administration costs low and facilitating the subscriber in the voluntary pension plan.