PFRDA to revamp pension fund regulations, reduce cost of compliance

Pension regulator PFRDA has come out with a slew of proposed changes to its pension fund regulations as part of its aim to further ease of doing business and bring down compliance costs leading to increased returns for subscribers.

Public comments have now been invited on the draft proposals —numbering over 30–by July 21. The PFRDA’s move to review and overhaul its pension fund regulations comes in the wake of Finance Minister Nirmala Sitharaman’s announcement in her budget speech this year that financial sector regulators would be requested to undertake comprehensive review of regulations to simplify, ease and reduce cost of compliance.

• Read: NPS regulations: Pension regulator goes in for comprehensive review, sets up two panels

PFRDA has now proposed changes that would lead to simplification of governance norms of pension funds (PFs) in line with Companies Act 2013 based on enhanced disclosures for PFs. PFRDA proposes to stipulate Directors’ Responsibility Statement and CEO and CFO certification to be part of scheme financial statements.

CEOs and CFOs have to take responsibilities that scheme financial statements have been prepared and presented to provide a true and correct view of scheme’s state of affairs and scheme NAV; there is adequacy and effectiveness of internal financial processes and digital architecture controls; compliance with PFRDA Act, PFRDA (pension fund) Regulations, investment guidelines, valuation guidelines, stewardship code, voting policy and other applicable laws and adherence to Code of Conduct and Ethics.

PFRDA has now given thrust on risk-based supervision and stipulated that PFs would have to set up additional committees of the Board such as Audit Committee and Nomination & Remuneration Committee.

The proposed changes to PF regulations also include segregation of roles of sponsor and PF and simplification of compliance requirement including approval of change in management/shareholding pattern of sponsor of PF only in specific scenarios and only intimation in remaining scenarios. 

Terms and definitions used in the regulations such as business day, compliance officer, key managerial personnel and sponsor are proposed to be simplified. 

Some of the interesting proposals include stipulation that a director of a PF cannot be a director in the Board of any other PF; ensure that a pension fund is a ‘fit and proper person’; requiring a PF to commence operation within a period of six months from the date of grant of certificate of registration.

PFRDA also proposes to stipulate that the sponsor or the PF should obtain prior approval of PFRDA in case of amalgamation or merger or acquisition or take over by the sponsor leading to holding of equity stake by sponsor or PF in any other pension fund already registered with the authority.

This PFRDA move to bring changes to its PF regulations comes at a time when the pensions assets (NPS and APY) of the country are growing at frenetic pace of over 20 per cent and has touched a level of ₹ 9.8-lakh crore as of July 1 this year.