Insurance Regulatory and Development Authority Chairman N Rangachary on Friday objected to the government's proposal to invite separate joint ventures or subsidiaries to enter pension business.
He was responding to reports that insurers will not be allowed to enter the pension funds sector on their own and entry will be permitted only via subsidiaries or joint ventures.
The IRDA chairman said it will create a conflict of interest if two regulators are going to monitor the action -- IRDA for payouts and the proposed Pensions Regulatory and Development Authority for contributions to pension schemes.
In developed countries except in Singapore, there is a single regulator for both life and pension, Rangachary said.
In India, only a life insurance company can offer an annuity, he said. "When you talk of pension, which is nothing but an annuity, insurance companies are better equipped to collect funds, accumulate them, invest them and pay out at designated dates.
Running a pension business involves a long time-span and requires investment expertise. The life companies proved that they have both," Rangachary said.
The pension companies need to revaluate their liabilities from time to time, match the liability and take into account the investment income, be in a position to reward their investors well, he said.
Because of the long time period involved, the new companies might find it difficult to match their investments and liabilities.
In addition to this, investors of these policies will not be content with less than average returns while the average real returns will be lower because of the various imponderables like investment norms laid down by the new authority, he said.
"If you are going to have a pension fund manager within a life company, it severely restricts his activity to accumulation, gives him enough time to invest in a manner which will enhance the return on investment.
He can invest the money in as risky an investment as the customer wants, or he can go for a whole government bonds investment or a combination.
So what will happen is you can convert these investments into a larger principal than what you get in an insurance policy. The larger the principal sum is, the larger will be the pension," he said.
"There are charges that life companies do not know how to manage their funds and they do not have investment expertise But, I would like to ask which company had as much investment as the LIC has.
All these asset management companies put together do not have even 10 per cent of the LIC's corpus, which is at Rs 2,40,000 crore (Rs 2,400 billion) and the corporation invests about Rs 30,000 crore (Rs 300 billion) afresh every year in the market," he said.
