Pension Fund Regulatory Development Authority

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