With a standalone FDI policy in the works, the pension sector may soon have an identity of its own. The pension regulator PFRDA has initiated the first steps towards an independent foreign direct investment policy.
“The FDI policy on pensions is on the drawing board stage. One cannot give a timeline as to when it will be ready. Once it is framed by the PFRDA, it will be forwarded to the Department of Industrial Policy and Promotion (DIPP) and the Department of Financial Services,” RV Verma, Member, Pension Fund Regulatory and Development Authority, told BusinessLine .
The intent is to send a clear message to foreign investors who are keen to put money in the pension sector and provide them with all the clarity around the investment norms at one place, he added. This is significant as India so far does not have a ‘standalone’ FDI policy for the pension sector. The foreign investment regime is largely linked to the one prevailing for insurance, especially with regard to the FDI cap. Any pure-play foreign pension player has to look at the FDI policy on insurance before firming up investment decisions in the pension sector.
The PFRDA law enacted in 2013 — which gave statutory backing to the pension regulator — had stipulated that foreign investment in the pension sector cannot exceed 26 per cent of the paid-up capital or the level prescribed for insurance companies under the Insurance Act, whichever is higher.
Recently, the FDI cap in insurance was raised to 49 per cent from 26 per cent and investments can come in under the automatic route up to this level. Going by the PFRDA law, this would mean that FDI of up to 49 per cent can come into the pension sector too.
Having a dedicated FDI policy for the pension sector would set the stage for de-linking pensions from the foreign investment regime prescribed for the insurance sector, Verma said, adding that “It would set the stage for us to look at pensions separately from insurance in the coming years and chart out a separate roadmap for its growth.”
As part of the ‘standalone’ FDI policy for pension sector, the PFRDA will now embark on the process of defining “control” and spell out other norms related to foreign investments in the sector.
Verma also said that the ‘standalone’ FDI policy was not being framed at the behest of the government and should be seen an initiative of the pension regulator.