So many regulators

The pension fund regulator’s move to stake a claim to pension schemes of insurance companies has prepared the ground for one more turf battle in the financial sector. And the arbiter would logically be the Financial Stability and Development Council ( FSDC), presided over by the finance minister. This underlines the need for serious debate on the regulatory structure of the financial sector: would it be more efficient to have just two regulators, one a macroprudential regulator and the other to supervise all the rest?

While this debate is on, it is not very difficult to see that a separate regulator for pensions could well be redundant. Pensions entail efficient record-keeping of contributions, management of the corpus of long-term savings and conversion of a sizeable portion of the accumulated savings into annuities.

Regulation of record-keeping, accumulation, asset management and conversion of lump sums into annuities, based on actuarial calculations, are all activities that can be carried out by the existing insurance regulator. The insurance regulator or Irda would resist ceding control over pension schemes for two reasons. One, the insurance law allows life insurers to launch pension schemes and Irda to regulate them.

Two, pension plans contribute a sizeable amount to the insurers’ coffers. Reforms in the pension business will also open up new avenues of growth for life insurers. The industry can take advantage of this opportunity as insurers have the ability to manage long term funds and the actuarial expertise to assess risks and forecast future payouts. So, it makes sense for the Irda to regulate all pension schemes, not just plans launched by insurers.

Only two mutual funds, overseen by Sebi, offer retirement savings products today. These plans can also be regulated by the Irda. The government should, therefore, review the need to have a separate pension fund regulator. The New Pension System that has been created under the Pension Fund Regulatory Development Authority ambit is not necessarily tied to a new regulator. It can flourish under the Irda as well.