Another turf war: PFRDA wants pension fund managers to provide annuity, not insurers

The pension regulator is mulling setting up annuity service providers outside the insurance sector, wants PFMs to provide annuities for its pension products rather than relying on insurance companies. Is this planting the seeds for another regulatory turf war?

In a move that will start another regulatory turf war, the Pension Fund Regulatory and Development Authority (PFRDA) wants annuity products to be sold by pension fund managers. Currently, they are exclusively sold by insurance companies. This is one of the many radical thoughts of PFRDA under the new chairman Yogesh Agarwal which will be debated by a committee set up under the chairmanship of the former chairman of the Securities and Exchange Board of India, GN Bajpai, to overhaul the stagnant New Pension System (NPS). If the PFRDA has its way, there would be a new turf war - this time between the insurance regulator and PFRDA over whether annuity is a pension product and should be regulated by the latter too. Of course, before PFRDA does step in to regulate annuities, it will have to get the required teeth. The PFRDA Act has still not been passed by Parliament.

Articulating PFRDA's view on annuity, in an interview with the newspaper Mint, Mr Agarwal said that that the regulator was in favour of having annuity products as distinct from what insurance companies are providing. "We consider ourselves as the regulator of the entire pension sector and in today's market, you see most products are hybrid products that can come under multiple regulators. ASPs (Annuity Service Providers) will work with the insurance regulator to see how best we can regulate them. But we would have ASPs outside the insurance sector also."

Essentially, PFRDA is trying not only to put the onus of selling its products on fund managers but also wants them to create and distribute annuity products for the benefit of pension customers. This means that the seven PFMs, namely, LIC Pension Fund Ltd, SBI Pension Funds Pvt Ltd, UTI Retirement Solutions Ltd, IDFC Pension Fund Management Co Ltd, ICICI Prudential Pension Funds Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd would be peddling annuity products. Of these, only UTI and IDFC have no life insurance arm of their own; the rest have independent life insurance operations.

Mr Agarwal even suggested that insurance companies get out of annuity altogether. On being asked whether this would lead to a duplication of service, Mr Agarwal replied, "See, providing annuity is a feature of a pension product. So, at some stage, insurance companies will have to rethink. They have been doing it for 40-50 years and so you can't just tell them to stop. But, at the same time, when the investor takes a decision in due course, he will have a choice between insurance firms and PFMs on the basis of who gives better returns."

However, PFRDA seems to have missed a point or two in coming up with this idea. While the chairman claims that providing annuity is the feature of a pension product, he seems to have ignored the provisions of the Insurance Act, 1938, Section 2(11), which outlines annuity as the business of a life insurance company. Gorakhnath Agarwal, chief actuary, Future Generali India Life Insurance Co Ltd explained to Moneylife, "As per the definition given under (the) Insurance Act, annuity products are categorised under life insurance business and come under the purview of IRDA. If PFRDA wants to set up separate annuity providers, the government may have to make appropriate changes to the Act." This means that the PFRDA may inadvertently set off another regulatory turf war in the country in case it pushes the idea and IRDA has something else to say abut it. As of now, it is only a thought and so may not have sounded alarm bells at the insurance regulator's offices. Even internationally, annuity products remain the domain of life insurance companies and other entities are not allowed to sell annuity products.

Mr Agarwal's idea behind the exercise seems to be offering a wider choice for pension customers, who can pick and choose their own annuity providers on the basis of who gives better returns. PFRDA's rationale is that a pension product is much more than the annuity product offered by insurance companies and that providing an annuity is the feature of a pension product. So, it wants the PFMs for its pension products to offer annuities to the customer. However, this move will likely create more confusion in the minds of the customers, who are already clueless about the modalities of the NPS, apart from another round of turf wars, underlying therefore the need to have a super regulator.

PFRDA has been thinking of ways to change the way pension systems operate in the country. First came the call for having pension fund managers (PFMs) push the struggling New Pension System (NPS) instead of the point of presence service providers (PoP-SPs). As we pointed out, however, (see here: this makes no sense especially since fund companies are not able to sell even a tried and tested product like equity mutual funds.



bhanu pratap

5 years ago

with the increasing number of workforce joining private sector, the nps is a type of social security for this workforce and its not that the fund managers are not able to sell the nps, but its the low visibility of the product which is making it difficult to sell. As for annuity products it is worthwhile that annuity is also sold by fund managers as a separate entity because under nps there is a compulsion of selling 40 percent of the accumulated fund to annuity provider. So in that case Annuity products too need to be efficiently managed and marketed which may not be the case presently.


6 years ago

If the proposed move is designed to give customers a wider choice, I wholeheartedly welcome it. The attendant possibility of a turf war should be mitigated by adequate checks and balances at the design stage itself. I support this because, five years ago when, pvt superannuation/ pension funds were, and are still, compelled to go to insurance companies for buying annuities, under the Income Tax Act, LIC was the only recourse. I strenuously sought exemption from this arbitrary rule, because we , as a Trust Fund could manage to get better returns than LIC, even by investing corpus only in approved securities and give benefits to members as per our laid down benefit-defined superannuation scheme. Going to LIC meant taking cuts in benefits as their premiums were very high. After much lobbying with Finance Ministry mandarins, with the IRDA having washed its hands off the issue, LIC dropped its premiums and other insurers were allowed to compete in this segment. Since then, there is a choice but having more options would certainly benefit customers.

Godrej sets up VC fund to finance agri-start ups

New Delhi: Diversified business group Godrej Industries has set up a $50 million venture capital (VC) fund along with a set of individuals to invest in agri start-ups, reports PTI.

"A venture capital fund is being promoted by Godrej Agrovet in partnership with other professionals for funding the start-ups in agriculture," according to Adi Godrej, chairman Godrej Group.

The new venture, Omnivore Capital, is targeting a corpus of $50 million (about Rs228 crore), to which Godrej will contribute 10%.

"Godrej Agrovet will pool in $5 million to the fund and rest would be raised by other professionals associated with the fund," Mr Godrej said. He, however, did not name the other partners.

Asked whether Omnivore has already identified projects for investments, Mr Godrej said nothing has been finalised so far.

"There are preliminary talks going on with several people but nothing has been finalised so far. The fund will look at innovative agri-projects in India and abroad," he added.

Godrej Agrovet, the agri business division of the group, deals with products and services that increase crop and livestock yields.

The company has interests in animal feed, oil palm plantations, agri-inputs and poultry, and registered total sales of Rs1,576 crore in 2009-10.


Steel ministry may seek concessions on profit sharing for PSUs

New Delhi: The steel ministry today said it may seek concessions for state-owned firms like SAIL and NMDC from the 26% profit sharing rule, proposed in the draft mining bill, as the PSUs have been fulfilling social obligations for long, reports PTI.

"Some special consideration has to be given to public sector undertakings (PSUs) for the historical role (in social obligations) being undertaken in different parts of the country," steel minister Virbhadra Singh said when asked if PSUs would be exempted from the mandatory profit sharing regime being proposed in the new mining bill.

Mr Singh said, however, that he wasn't in favour of complete exemption from the proposed rule for the PSUs. He was speaking on the sidelines of the inaugural session of International Federation of Consulting Engineers here.

Mr Singh's comments come days after a ministerial panel, headed by finance minister Pranab Mukherjee, reached a consensus to give the go-ahead to the draft mining bill, which seeks that miners share 26% of profits with local people affected by their mining projects.

The bill has now been sent to the mines ministry for fine tuning and the final draft is to be placed before the Group of Ministers (GoM) at its next meeting.

The new Bill, likely to be placed in the Winter session of Parliament, seeks to expedite grant of mining rights in a transparent manner and attract big investments in the sector.

SAIL chairman C S Verma had said in Kolkata last week, "Captive mines should be kept out of its (new legislation's) purview. We cannot sell what we mine. It is for our captive use."

SAIL has captive iron ore and coking coal blocks in various parts of the country.

Besides SAIL, the steel ministry is the administrative head of companies like NMDC, Rashtriya Ispat Nigam Ltd and MOIL.

NMDC is the country's largest iron ore producer, while RINL is a steel manufacturer.

The new bill has proposed that a fund — District Mineral Foundation — be created and the beneficiaries be paid out from it.

Besides, it proposes that in case of a mine being non-functional or in losses, companies should compensate the people affected by land acquisition by paying them amount equal to the royalty given to state governments.

The royalty paid by mining companies to state governments runs into hundreds of crores of rupees.


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