Opening the pension sector to foreign direct investment (FDI) is expected to lead to the entry of many foreign companies. However, several issues are yet to be clarified.
Hira Sadhak, former chief executive of LIC Pension Fund, said allowing the scheme with guaranteed returns was a welcome step. However, he added FDI in the pension sector would come in only when a regulatory mechanism was in place. “Risk management and backing of the regulatory system should be in place before foreign players come into the market,” he said.
According to the Pension Fund Regulatory and Development Authority (PFRDA) Bill approved by the Cabinet, the foreign investment cap in the pension sector would be 26 per cent or the percentage approved for the insurance sector (whichever is higher), and may be incorporated in the present legislation. However, there is uncertainty on whether FDI in pension would be capped at 26 per cent or 49 per cent. PFRDA Chairman Yogesh Agarwal had said he would be happy with 26 per cent.
T R Ramachandran, managing director and chief executive of Aviva Life Insurance, said, “To begin with, it is not clear if FDI in pension is approved up to 26 per cent, or it is linked to insurance. But this move would definitely give more teeth to the PFRDA. Now, there are no foreign players in the pension space. However, this move alone cannot lead to foreign players’ interest in pension. They would come, depending on the nature of participation the sector allows, as pension products are available under both the Insurance Regulatory and Development Authority (Irda), as well as the PFRDA.”
P Nandagopal, managing director and chief executive of IndiaFirst Life Insurance, said the business case for foreign players to enter the Indian market was weak, as charges for pension here were very low. However, he added India was a good market for foreign players to enter, as it was still under-penetrated.
A senior Edelweiss Tokio Life Insurance official said foreign players entered any sector only after all papers and norms were clear. “Till it is approved in the Lok Sabha, we can’t say much. But I believe this space has a lot of potential and, hence, more players should come in. But will that mean insurers can get a licence from PFRDA and enter the space? Maybe,” he said.
The PFRDA Bill, 2005, was introduced in the Lok Sabha in March 2005 to provide for a statutory PFRDA. However, since the Bill and the official amendments based on the recommendations of the standing committee on finance could not be considered by the Lok Sabha, the Bill lapsed on dissolution of the 14th Lok Sabha. In Budget 2011-12, the government had stated the revised PFRDA Bill would be moved in Parliament. Accordingly, PFRDA Bill, 2011, was introduced in the Lok Sabha in March 2011. The legislation sought to empower the PFRDA to regulate the New Pension Scheme. Insurance players design pension products according to Irda norms. For a company to launch PFRDA-approved pension products, it would need a licence from the PFRDA. This means the company would have to enter the PFRDA-approved product space as a separate entity, not as an insurance company.
