Section 9.4 – Regulations for Retirement Advisers (Focus: PFRDA Act & RA Regulations)

This third part of the five-part series on Chapter 9 dives deep into the specific legislative and regulatory framework governing Retirement Advisers. It covers the PFRDA Act, 2013, and the PFRDA (Retirement Adviser) Regulations, 2016, which define the boundaries of professional conduct, qualifications, and operational requirements.

9.4.1 Pension Fund Regulatory and Development Authority Act, 2013

The PFRDA Act is the cornerstone legislation for the pension sector in India. It established the PFRDA as a statutory authority to promote old-age income security and regulate pension funds to protect subscriber interests.

Key Statutory Definitions

To understand the legal framework, the Act provides precise definitions for the entities within the NPS architecture:

• National Pension System (NPS): A contributory pension system where contributions are collected and accumulated in individual pension accounts.
• National Pension System Trust: The Board of Trustees who hold the assets of subscribers for their benefit.
• Pension Fund: An intermediary registered to receive contributions, accumulate them, and make payments to subscribers.
• Central Recordkeeping Agency (CRA): An agency appointed for recordkeeping, accounting, and customer service.
• Point of Presence (PoP): An intermediary capable of electronic connectivity with the CRA for receiving/transmitting funds and instructions.
• Intermediary: A broad term including pension funds, CRAs, the Trust, pension fund advisers, retirement advisers, and PoPs.

Core Features of NPS under the Act

The Act mandates several features that define the NPS structure:

• Individual Accounts: Every subscriber must have an individual pension account.
• Partial Withdrawals: Limited to 25 percent of the subscriber's contributions, subject to specific terms.
• Choice and Portability: Subscribers have a choice of multiple pension funds and schemes, and accounts are portable across employers.
• No Guaranteed Benefits: There is no implicit or explicit assurance of benefits; returns are market-linked.
• Mandatory Annuity: On exit, a portion of the corpus must be used to purchase an annuity.

9.4.2 PFRDA (Retirement Adviser) Regulations, 2016

These regulations provide the framework for eligibility, registration, and the scope of work for individuals and entities wishing to offer retirement advice regarding NPS or other PFRDA-regulated schemes.

1. Registration and Exemptions

Any individual or entity acting as a Retirement Adviser (RA) must obtain a certificate of registration from the PFRDA. Exemptions from Registration:

• Advocates, solicitors, or law firms providing advice incidental to legal practice.
• Members of ICAI, ICSI, ICMAI, or Institute of Actuaries of India providing advice incidental to their professional service.

2. Qualifications and Certification

To maintain professional standards, the PFRDA mandates:

• Education: All individuals, proprietors, partners, and representatives offering advice must be Graduates in any discipline.
• Certification: They must possess a valid certification on retirement planning or advisory services from an institute accredited by the PFRDA (e.g., NISM).
• CPE Requirements: Certification must be renewed through Continuing Professional Education (CPE) before expiry.

3. Security Deposit Requirements

Registered advisers must provide a security deposit (bank deposit or performance guarantee) valid for six months beyond the registration period.

• Body Corporates/Firms: Amount determined by PFRDA notifications.
• Individuals/Proprietors: Specific deposit or guarantee required before commencing activities.

4. Fees and Charges

Advisers can charge fees for on-boarding and subsequent advisory services, subject to PFRDA-defined ceilings.

• On-boarding Fee: Applicable only after registration and PRAN generation.
• Advisory Fee: Based on a written agreement between the subscriber and the RA, and must be fair and reasonable.
• Non-Resident On-boarding: For prospects outside India, the fee is capped at US $8 (or equivalent); if the prospect is sourced through a foreign PoP branch, the fee is capped at US $2.

5. General Responsibilities and Code of Conduct

• Fiduciary Capacity: Advisers must act in the best interest of the subscriber and disclose all conflicts of interest.
• No Cash Collection: RAs are strictly prohibited from collecting cash for investment into pension accounts.
• Arms-Length Relationship: Advisory services must be clearly segregated from other business activities.
• Confidentiality: Subscriber information cannot be disclosed without prior written permission.

9.4.3 Scope of Work and Risk Profiling

Core Activities of an RA

• Creating awareness of NPS and PFRDA-regulated schemes.
• Advising on the necessity of old-age security and appropriate contribution levels.
• Conducting due diligence on the prospect's age, dependents, assets, and health history.
• Providing periodic advice on fund performance, NAV trends, and policy changes.

Risk Profiling Process

Advisers must assess a subscriber’s willingness and ability to take risk by evaluating:

1. Capacity for absorbing loss.
2. Understanding of market risk.
3. Investment horizon (ensuring they understand that retirement plans are long-gestation).
4. Tools Used: Questionnaires must be fair, clear, and not misleading.

Key Takeaways for Part 3

• Statutory Compliance: Registration as an RA is mandatory for anyone holding themselves out as a retirement expert, unless specifically exempt.
• Fiduciary Duty: The RA is legally bound to put the client's interests first and avoid mis-selling.
• Transparency in Fees: All fees must be agreed upon in writing and stay within PFRDA limits.
• Risk-Based Advice: Advice cannot be generic; it must be tailored to the specific risk profile and financial situation of the subscriber.

Important Terms to Remember

• Permanent Retirement Account Number (PRAN): The 12-digit unique ID for every NPS subscriber.
• Testator: An individual who makes a legal will.
• Legatee: A person named in a will to receive a portion of an estate.
• Executor: The person named in a will to administer the deceased person’s estate.
• Arm's Length Relationship: A requirement to keep advisory business separate from distribution or execution services.

[End of Part 3. Part 4 will cover the PFRDA Regulations for PoPs, CRAs, and the NPS Trust.]