Irda likely to favour life insurers for pension funds

Harjeet Ahluwalia

New Delhi, Aug 3: With the Unit Trust of India (UTI) crisis playing havoc with public confidence, the Insurance Regulatory and Development Authority (Irda) seems to have decided to play safe on the pension funds issue.

Accordingly, the draft Bill on pension reforms is expected to come out strongly in favour of life insurance companies as the prime providers of pension funds. Stand-alone pension fund providers would be required to begin with a Rs 100-crore capital at least.

It is reliably learnt that Irda may also opt for allowing a simple 1 per cent commission on sale of pension fund products, on the lines of the commission paid to agents selling government bonds and similar instruments.

Were regular insurance commission rates to be applied, a 35 per cent or more commission would render the whole scheme unviable, according to authoritative sources.

It is likely that the draft would stipulate that “fit and proper” players alone enter the sector. Thus, life insurance companies, that anyway already offer annuity products, would be the key actors and the various tiers proposed in the Old Age Security and Income Scheme (OASIS) report are likely to be given a go-by.

Authoritative sources said that the OASIS proposal for asset management companies as being allowed in as fund managers is not being perceived as a workable solution.

Any party seeking to enter the sector would be required to set up a separate pension fund with a Rs 100-crore capital base at least.
Even the points of purchase, like post offices and banks, would only add to the costs of administering the schemes.