Will the next PFRDA chairman be another bureaucrat on a sinecure after exodus of PFRDA chairman Yogesh Agarwal?

The process of appointing and supervising the many independent regulators in the financial sector is clearly breaking down. Over the past few years, Moneylife has repeatedly pointed out how independent regulators are not exactly pro-consumers even as they have been armed with extraordinary powers, due to the disinterest of the finance ministry and the parliamentarians on the standing committee of finance. Our attention was mainly focused on the capital market regulator, insurance regulator and the banking regulator.

The pension regulator, Yogesh Agarwal, flew below the radar because he operated without an empowering statute and also because the National Pension System (NPS) had failed to attract investors. Then, on 12th November, just two months after Pension Fund Regulatory and Development Authority (PFRDA) got its statutory teeth, came the startling news that Mr Agarwal has been asked to resign.

The exit came a year and half before his term was to expire and without any explanation beyond unattributed comments that he wasn’t getting along with finance ministry bureaucrats. My sources say that the PFRDA did not hold board meetings and there was some rumbling about frequent foreign trips and some questionable appointments at PFRDA during his tenure. He was even kept out of the selection committee to appoint whole-time members. Mr Agarwal has apparently chosen to remain silent about the reasons for his exit.

PFRDA oversees the defined contribution NPS which has over 5.3 million subscribers and a Rs35,000 crore corpus of mainly government employees on whom this scheme was thrust in 2004. When NPS was first launched, Moneylife was extremely bullish about the product as a safe, long-term investment.

However, in the absence of distribution commissions, neither banks nor independent advisors had any interest in pushing the scheme. Our view turned negative soon after Mr Agarwal took over and began to tinker with the scheme. Our view remained negative, even though the government tried to push the product by contributing Rs1,000 per year to each subscriber for four years.

In January 2013, Moneylife wrote, “A retirement product should be less volatile, small on charges, big on tax benefits and flexible after retirement.” We had pointed out that, over 2009-11, returns of the scheme for the unorganised sector had varied from 23.51% to -3.15%, although NPS investments are supposed to be strait-jacketed.

This is bound to scare away savers who simply cannot afford volatility on a pension plan. Also, if this was the volatility in just three years, what would be the fate of the pensions over 30 years? The product was further marred by high fixed transaction charges, which would deplete the savings of small investors, rendering the product unattractive for them. PFRDA also increased the investment management fee and allowed fund managers to revise it every year. For long-term investors, who are expected to lock their funds for several decades, this uncertainty and tinkering killed the product and Moneylife refuses to endorse it anymore.

Typical of India’s financial regulators and the ministry, these concerns were never even acknowledged, let alone addressed. Will things change now that the PFRDA chairman has been asked to go? Or will he merely be replaced by a retired bureaucrat after going through the motions of an elaborate selection process? The SEBI saga outlined in the next report only shows the urgent need for greater transparency and accountability in selecting independent regulators in India.