Pension fund regulator PFRDA is keen that sponsors and pension funds set up by them are strong enough to ride the current growth wave in the pension sector. Towards this end, it has tweaked the capital requirement norms for sponsors of Pension Funds, stipulating higher paid-up capital and networth for those looking to set up such funds.
A sponsor – individually or jointly– of a pension fund should have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible networth of at least ₹ 50 crore on the last date of each of the preceding five financial years, the PFRDA has now ruled.
“The way we see growth in pension sector in last few years, we believe that in days to come it will grow even further. We felt the sponsors should be adequately capitalised and then only the pension funds they set up can perform well. This has prompted us to bring this change as earlier they could apply with networth of ₹25 crore,” Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority (PFRDA), told BusinessLine.
He also said that all existing pension fund managers – eight of them – will be given six months time to conform to the new dispensation of having networth of at least ₹50 crore. Hitherto, the minimum networth requirement for them was placed at ₹25 crore, and some of them were already at levels above the ₹25 crore threshold.
India’s pension assets under management (AUM), which recently crossed the ₹6-lakh crore mark, has been growing at frenetic pace of over 30 per cent. The PFRDA sees the overall AUM at this growth rate touch ₹30 lakh crore by 2030. ByMarch-end 2021, PFRDA expects pension AUM to touch ₹7.5-lakh crore.
This latest PFRDA move to enhance the capital requirement of sponsors comes at a time when the pension regulator is expected to soon open an ‘on tap’ window of 30-40 days for those looking for pension fund manager’s licences.
The on-tap window could also prompt some of the existing mutual fund players to take a serious look at the pension sector and enter this space, say market observers.
Another important reason why sponsors and pension funds need to be capitalised better is the PFRDA plan to allow pension funds offer minimum assured return scheme (MARS) products to customers. As such assured return scheme would entail risk, it is better to be well capitalised to take care of eventualities, said experts.
ThePFRDA had recently come up with a Request for Proposal for appointment of a consultant to help the regulator design the MARS.