With the Central Recordkeeping Agency (CRA) in place and three pension fund managers identified (UTI, SBI and LIC), the stage is almost ready for managing the retirement monies of Central government employees by June 2008. In an interview to Deepti Bhaskaran, Pension Fund Regulatory and Development Authority (PFRDA) chairman D Swarup explains the rationale behind important issues of costs.

• Till the last month, the general impression was that the pension funds of government employees would be invested in index and exchange traded funds, which are cheaper options than managed funds and also offer ‘equity exposure’. Now fund managers have also been given the option to invest in managed funds. Why?

It was recently communicated to me that we need to follow the guidelines stipulated by the Ministry of Finance for non-government pension funds. The guidelines clearly say that the pension fund can be invested through debt or equity mutual funds. Having said that, it is true that our plan was to invest via index funds, which are cheaper alternatives. But this will have to wait for the Pension Bill, which is pending in Parliament to be cleared and New Pension Scheme (NPS) is open for the public.

• PFRDA had stated that the fund management cost would be reined in at 5 basis points (that’s 0.05 per cent), with LIC and UTI charging 5 bps and SBI charging 3 bps. But mutual funds that they will invest in have separate set of charges. As a result, the pension funds will not be as cheap as projected. Is it so?

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