At a time when the Government is making all-out efforts to popularise pension schemes in the country, two regulators, Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority (PFRDA), have locked horns over the pension fund business, which is still operated by some life insurance companies.
PFRDA is waging a war against insurance companies by telling the Government that the pension fund business of life insurance companies must be regulated by it on the plea that the PFRDA Act clearly states this.
“Our long-pending demand is that all pension fund business should come under the PFRDA. We have already requested the Finance Ministry to look into the matter. The pension fund business of life insurance companies has already been reduced to one-tenth in the past four years due to the IRDA’s diktat on making it a guaranteed one,” a senior PFRDA official told The Pioneer.
According to the PFRDA, under the National Pension Scheme (NPS), individual savings are pooled into a pension fund and invested by PFRDA-regulated professional fund managers as per approved investment guidelines into diversified portfolios comprising of Government bonds, bills, corporate debentures and shares. In spite of good returns and being a defined benefit scheme, NPS has lagged behind other long-term investment products such as Provident Fund, due to lack of Exempt-Exempt-Exempt (EEE) or tax-free status at the time of withdrawal. NPS, however, has Exempt-Exempt-Taxed (EET)
status or taxable at the time of withdrawal. The corpus from an NPS account, once received, is taxable under the appropriate bracket.
“PFRDA has been seeking EEE status from the Government for a long time to grow this business and to bring it at par with other such instruments,” the official said.
“As per the NPS tax break benefit that was announced in the budgetary declaration by Union Finance Minister Arun Jaitley early this year, the problem is that the EEE status has been given to life insurers only, where we have been deprived of such benefits,” he added.
The Finance Minister in his Budget speech declared that if one invests an extra Rs 50,000 in NPS, in addition to Rs 1.5 lakh tax-free investment, then it will not be taxed.
On the other hand, life insurers feel that in case PFRDA starts regulating pension funds, then investors will lose interest in parking their money in such funds. “Currently, insurance companies enjoy EEE status, whereas pension funds under NPS don’t have this facility. It means that investors putting their money in pension funds being regulated by PFRDA will have to pay tax at the time of redemption, whereas they needn’t pay any tax in case of investments in life insurance companies,” said a top official of a State-owned insurer.
At present, the fund regulator has eight pension fund managers who are managing pension wealth of subscribers. The growth of this fund is not picking up due to some reason or the other.
However, PFRDA Chairman Hemant G Contractor said: “The Government is very keen to cover every Indian under some pension scheme or the other, but sadly the pace of its growth, especially in NPS, has not been too encouraging. Despite such an acute need, people have not come out in large numbers to participate in it.”
NPS being the lowest-cost pension schemes in the world, its architecture is low-cost and flexible and there is no fixed amount that one needs to pay. Talking about growth of the pension scheme, he said: “We have reduced it considerably and simplified the system.
There are attempts to create more flexibility and increase awareness about this product.”
“The PFRDA is all set to launch an online facility for opening of accounts under the NPS to grab its prospective customers,” he added.