Millennium Post

Pensions and transparency

Pensions and transparency
The abrupt exit of Yogesh Agarwal as the Chairman of the Pension Fund Regulatory and Development Authority (PFRDA) in the middle of this month has come at an inappropriate time when the legislative imprimatur for the PFRDA Act was given in Parliament just a couple of months ago.

Though the finance ministry put on a brave face that his resignation was gratuitous and in no way related to his exclusion from the selection committee to appoint two whole-time directors for the regulatory authority, this did not detract the significance of the fact that Agarwal has before him more than a year to complete his five-year fixed tenure. Nor was this slight lost on the discernible and dispassionate observers of the unsavory developments on the nascent pension fund scenario, particularly the umpire has no empire-building intentions to sit in perpetuity or more than one term unlike in other domains like power and telecom.

While it is nobody’s case that the full-time members to be selected to assist the Chairman should be decided by him, it is also a biting and sticking point to the Chairman if he does not have an iota of clue as to the new directors prior to their selection or in case they are foisted on the Authority after the selection! After all, the regulator is appointed prima facie in good faith on his regulatory ability and capacity and if the higher echelons of decision-making in the finance ministry do not play by the rules and conventions, the market participants in the pension fund arena would be too lax or slack in abiding by the authority’s rulings, knowing full-well that the Chairman is pliable and liable to be thrown out if he passes orders that might be adverse to their commercial undertakings!

Instances of political and industry players connivance are too high to be brushed aside! As it is, there is a muddled approach to regulatory agency in the extant regulatory machinery in crucial fields such as hydrocarbons, power and telecom, rendering private investors jittery and dragging them to unwanted and protracted litigation. A sensible approach is to do all the home work in a transparent way so that no room for suspicion about the motives or hidden agenda is unnecessarily caused to the chagrin of the team managing the PFRDA or the market players.

It is interesting to note that at a recent meeting of Consultative Committee of Parliament attached to his ministry, the Union Finance Minister P Chidambaram said that in tune with the times when most countries  have been moving from a ‘defined benefit’ pension system to a ‘defined contribution’ system to  enable pension-related commitments to be sustainably discharged,  India’s  NPS (earlier christened as the New Pension Scheme for government employees but re-christened now as the National Pension System to rope in the private and the unorganised sectors in tow) is a step in that direction.

The recently-enacted PFRDA Act, giving statutory status to the Authority, is expected to allay apprehensions about safety and yield under the NPS, besides being a custodian of the subscriber interest. The NPS, while mandatory for all Central government employees save armed forces entering service effective from 1 January 2004, was extended to all citizens pan-India including unorganised workers on voluntary basis from 1 May 2009. With the number of subscribers at over 53 lakh and a corpus of Rs 37,000 crore,  the PFRDA was set up to efficaciously invest and manage this huge corpus of legions of subscribers  and to ensure the integrity and user-friendly utility of the NPS. The government is confident that market based returns and wider coverage based on a menu of investment options in the pension sector would go a long way in bolstering the confidence of the subscribers over the long haul while consciously pruning its profligate payouts of the past pension scheme.

Even as Chidambaram has assured that investment of these funds would be made in concert with the law passed by Parliament and the pension authority is accountable to Parliament through various provisions in the Act, how far the ministry of finance desists the temptation to call the shots through back-seat driving would ensure the autonomy of the authority besides underpinning the subscribers loyalty with the NPS, analysts say. The availability of minimum assured return scheme to be notified by the PFRDA and the option of investment only in government securities for risk-averse subscribers and the option to invest in equities and other private corporate bonds by subscribers with robust risk appetite are issues the authority must perforce have to concentrate and work out without getting embroiled in any unwanted controversy over the PFRDA’s functionary or functioning!

IPA
G Srinivasan

G Srinivasan

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