Insurance companies will play a key role in managing the annuity component of pension fund business while the government will be looking at foreign expertise for defined contributions activity in the sector, a senior finance ministry official said.
"The separation of fund management (for pension fund accumulation) from the benefit phase (annuity) will have an impact on regulatory mechanism and insurance companies have a role in the latter," Pradipto Ghosh, additional secretary in finance ministry, said addressing a workshop on pension reforms organised by the Confederation of Indian Industry.
Ghosh said the entry norms for pension fund players, designed to encourage competition, would take into account costs involved in marketing and transactions.
On seeking overseas expertise for pension funds, Ghosh said. "Indian pension fund managers do not have experience and we need expertise from abroad to speed up development of pension sector in the country."
The participation in the global securities market (investment) enables to contain risks, enhance skills and provide opportunity to improve yields, he said.
Ghosh said the proposed Pension Regulatory and Development Authority would incur expenses on building awareness about pension products, rights and obligations of the customers.
However, the authority would not extend any financial support to fund management companies for marketing their schemes, he added.
"Similarly, we expect the market (pension fund players) to provide solution for non-performance or default rather than look for government guarantees," Ghosh added.
On being asked if the mutual funds would be permitted to enter into pension fund management business, he said the rules and regulations for pension fund sector would be worked out shortly.
The insurance sector companies, which have experience in fund management, could also get into pension field, he added.
Meanwhile, A P Kurian, chairman, Association of Mutual Funds in India (AMFI) said, "Mutual funds with significant experience in wealth management and wide distribution network were ideal candidates to act as pension fund managers."
"The fund management experience and low distribution costs, MFs with 50 per cent household investor base can reach unorganised labour and self-employed persons too," Kurian added.
Donald A Stewart, chief executive officer, Sun Life Financial Inc, highlighting the areas that needed to be addressed to determine the correct future course said, "One area that needs to be looked at is trends in longevity and demographics that are creating challenges for government, employers and individuals, the role of government and private pension providers and the implications for the Indian consumer."
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