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UTI, life insurers may not need fresh licence for pension funds

Sidhartha

The government is likely to exempt the Unit Trust of India besides life insurance companies from obtaining a fresh licence to enter the Indian pension fund market. All others will, however, be required to obtain a registration certificate from the Insurance Regulatory and Development Authority.

According to a preliminary draft report prepared by the IRDA, life insurers would be required to file only a "file and use" application before launching a pension fund product.

The move is being seen as an attempt by the regulator to bring private sector life insurance companies at par with the Life Insurance Corporation of India, the only insurer permitted to underwrite and sell pension funds in India at present.

"Though a final decision on UTI has not been taken, the mutual fund behemoth may get a special dispensation as it is already under Sebi purview," said a source.

IRDA, which has been given the mandate to prepare the approach paper for liberalisation of the pension fund market, has to submit its report to the finance ministry by October this year.

The preliminary draft has also taken the approach that the existing rules governing life insurers be extended to those players entering the pension fund business. Though the draft paper does not go into details, sources said that as a result of the "mutatis mutandis" approach, the initial paid-up equity for entering the pension fund business is expected to be Rs 1 billion.

Similarly, prudential and solvency margin requirements will be applicable to pension fund players.

"Though the rural and social sector norms for life insurers will also be applicable to the pension fund players, the possibility of prescribing a higher limit will be discussed," said a source.

The preliminary draft will now be discussed internally within IRDA before discussions with the finance ministry and other ministries are initiated. It will also be sent to the law ministry for its concurrence.

The approach paper being prepared by IRDA will not cover the government pension scheme and the schemes run under the aegis of the provident fund commissioner.

IRDA is using the Dave committee report on the Old Age Social Income Security scheme as a base for devising a framework for pension fund business. The details for developing a social cover for people below the poverty line are being worked out at present.

According to the OASIS report, once the sector is liberalised, pension fund companies will tie up with banks and post offices, who can act as points of presence, and collect premium on behalf of the companies. The funds collected will then be transferred to a central depository, which will then earmark them to professional fund managers.

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