Government of India Volume I: Analysis and Recommendations

ANNEXES
16. Consumer protection regulation must be proportional to the risk held by the consumer,
and the extent to which the consumer is responsible for taking decisions
about the plan on issues such as investment.
17. All individuals dealing with retirement financing must be registered with the regulator,
who must stipulate significant training requirements on the individuals involved
in the process of helping the consumers decide about retirement financing.
18. The structure of various types of charges on retirement financing schemes should
be regulated by the regulator.
19. The regulator must be given the powers to ensure inter-operability, portability and
exit options in retirement financing plans.
20. The regulator must have the power to mandate suitability analysis and advice to
be given by the provider to the consumer regarding the asset allocation decision.
The regulator must also have the power to recommend modifications to schemes
and processes to ensure that consumers are given suitable solutions.
Failure of retirement finance funds
21. The law should provide for an efficient resolution mechanism for funds offering defined
benefit retirement financing plans. This should be modelled on the resolution
process for banking and insurance, but with more time for the funds to improve
their financial position. There should be an agency responsible for the resolution
function.
22. There should be a process to move the consumers’ funds from one defined contribution
fund to another smoothly, if the retirement finance entity sponsoring the
defined contribution fund goes bankrupt.
23. The agency responsible for resolution should have access to comprehensive information
about retirement finance entities and funds. The agency should have access
to auditors’ reports and the powers to ask for information on any fund and
conduct on-site investigation of a fund.
24. The resolution process should start with a quantitative trigger.
25. The resolution process should start with giving the fund a notice to improve its financial
position. If the fund fails to do so, the process should focus on transfer of
the assets to another fund, or under the management of another fund. Liquidation
of fund should be the last option in the resolution process. When resolution
process starts, the fund should be prevented from collecting contributions
26. Establishing a retirement finance protection fund, which would guarantee payouts
from all defined benefit schemes, may be considered. The fund could also provide
some guarantees to defined contribution schemes, to help them hedge certain investment
risks.
27. If the retirement finance protection fund is established, it should charge risk-based
levy from the participating funds; participation should be mandatory for funds offering
defined benefit plans; and the fund could be managed by the agency that is
responsible for resolution of failing funds.
Special topics
28. Only insurance companies that have proven capability in offering life insurance
should be allowed to do the business of issuing annuities.
29. Compared to pension funds, for insurance firms issuing annuities, there should be
greater flexibility given to the regulator in law to stipulate restrictions on investment
choices. This should be in line with the regulations of life insurance companies.
30. The regulators should work to ensure that consumers take the optimal annuitisation
decision, by mandating partial annuitisation and providing active support to
consumers to take the right decision.
172 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION