Introduction: The Pension Fund Regulatory and Development Authority (PFRDA) recently issued a significant notification regarding amendments to the National Pension System Trust (NPST) regulations. Dated February 5th, 2024, this notification brings forth several changes aimed at refining the functioning and governance of pension funds. Let’s delve into a detailed analysis of these amendments.
Detailed Analysis:
1. Scope of Amendments: The amendments outlined in the notification encompass various facets of the NPST regulations. They range from redefining key terms such as “auditor” and “Compliance Officer” to specifying eligibility criteria for trustees.
2. Key Changes: Notable alterations include the redefinition of terms like “auditor” to align with the Companies Act, 2013, and the introduction of clauses to regulate liabilities and expenses incurred by the NPST.
3. Trustee Eligibility: The notification emphasizes stringent criteria for appointing trustees, emphasizing integrity, competence, and adherence to ethical standards. Additionally, it mandates the disclosure of beneficial interests held by trustees in other entities.
4. Executive Leadership: A significant addition is the provision for appointing a Chief Executive Officer (CEO) for the NPST, with defined qualifications and terms of service. This aims to enhance administrative efficiency and ensure competent leadership.
5. Audit and Compliance: The notification strengthens internal audit mechanisms, requiring quarterly reports and compliance with stewardship codes and cybersecurity guidelines issued by the Authority.
6. Regulatory Oversight: Enhanced regulatory oversight is evident through provisions for regular inspections, audits, and submission of certified accounts. These measures aim to ensure transparency, accountability, and the protection of subscriber interests.
Conclusion: The PFRDA’s notification on NPST amendments heralds a comprehensive regulatory framework aimed at bolstering the pension fund sector’s integrity and efficiency. By delineating stringent guidelines for governance, trustee eligibility, and executive leadership, the notification underscores the Authority’s commitment to safeguarding the interests of pension fund subscribers. These amendments are poised to have a transformative impact on the sector, fostering greater transparency, accountability, and trust among stakeholders.
***
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
NOTIFICATION
New Delhi, the 5th February, 2024
PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (NATIONAL PENSION SYSTEM
TRUST) (SECOND AMENDMENT) REGULATIONS, 2023
No. PFRDA/16/02/05/0001/2021-REG-NPST.—In exercise of the powers conferred by sub-section (1) of Section 52 read with clauses (e), (o) and clause (v) of sub-section (2) thereof of the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013), the Pension Fund Regulatory and Development Authority hereby makes the following regulations to amend the Pension Fund Regulatory and Development Authority (National Pension System Trust) Regulations, 2015, namely: –
1. These regulations may be called the Pension Fund Regulatory and Development Authority (National Pension System Trust) (Second Amendment) Regulations, 2023.
2. These shall come into force on the date of their publication in the official gazette.
3. In the Pension Fund Regulatory and Development Authority (National Pension System Trust) Regulations, 2015, as amended from time to time (hereinafter referred to as „the principal regulations‟), the following amendments are made.
I. In sub-regulation (1) of regulation 2 of the principal regulations,
i. Clause(b) shall be substituted as follows:
“(b) “auditor” means a person who is qualified to audit the accounts of a company under Section 141 of the Companies Act, 2013 (18 of 2013);”
ii. Clause(c) shall be deleted;
iii. Clause(d) shall be substituted as follows:
“(d) “Compliance Officer” means an employee of the National Pension System Trust, designated as such by the board of trustees for compliance of the provisions of the Act, rules, regulations, guidelines, circulars, instructions and directions issued by the Authority;”
iv. Clause(g) shall be deleted;
Sub-regulation (2) of regulation 2 of the principal regulations shall be deleted;
III. Clause (m) of sub-regulation (1) of regulation 4 of the principal regulations shall be substituted as follows:
“(m) prohibiting unlimited liability or that which would result in encumbrance of the assets vested in the board of trustees, except as approved by the Authority;”
IV. Clause (u) of sub-regulation (1) of regulation 4 of the principal regulations shall be substituted as follows:
“(u) provision regarding reimbursement of expenses incurred by the National Pension System Trust out of the assets held by the said trust for the execution of the trust, or the realization, preservation, or benefit of the said trust, or for the protection of its assets or protection of interest of subscribers, such that no surplus shall be created by the National Pension System Trust in this process.”
V. Sub-regulation (2) of regulation 5 of the principal regulations shall be substituted as follows:
“(2) A person shall be eligible to be appointed as a trustee of the Board of Trustees of the National Pension System Trust if he or she –
(a) is a citizen of India;
(b) is a person of ability, integrity and standing;
(c) has not been found guilty of moral turpitude;
(d) has not been convicted for commission of any economic offence(s) or violation of any securities laws;
(e) is qualified in law, finance, economics, accountancy, social welfare or administration with management skill and experience;
(f) possesses any other qualifications or fulfills terms and conditions including age limit that may be determined by the Authority; and
(g) has furnished particulars as specified in Schedule I.”
V. Sub-regulation (4) of regulation 5 of the principal regulations shall be substituted as follows:
“(4) A person shall not hold the position of a trustee to the Board of National Pension System Trust, unless he relinquishes his position as a trustee of any other pension trust, or as a director (including independent director) of any of the intermediaries registered with the Authority or that of its sponsor.
Provided that this shall not apply to a trustee appointed by the Authority, pursuant to a nomination received from the Central Government or State Government(s), as the case may be, by virtue of employment with said Government(s).”
VII. Sub-regulation (1) of regulation 8 of the principal regulations shall be substituted as follows:
“(1) (a) A trustee may, by thirty days‟ notice in writing under his hand addressed to the Authority, resign his office. However, the office of the trustee shall fall vacant from the date on which his resignation has been accepted by the Authority.
(b) A trustee who has resigned, shall not be eligible for appointment as a trustee, for a period of two years from the date of acceptance of his resignation.
(c) A trustee who has ceased to hold the office of the trustee, shall not be eligible for appointment as a director including independent director on the Board of pension fund, for a period of two years from the date he ceases to hold the office of the trustee.”
VIII. New regulation 8A shall be inserted immediately after regulation 8 of the principal regulations as follows:
“8A. Chief Executive Officer.- (1) The Authority may appoint a chief executive officer of the National Pension System Trust, who shall not be a trustee of such trust.
(2) A person may be appointed as Chief Executive Officer of the National Pension System Trust if he:
(i) is a citizen of India;
(ii) is a person of ability, integrity and standing;
(iii) has not been convicted of moral turpitude;
(iv) has not been convicted of commission of any economic offence(s) or violation of any securities laws;
(v) possess qualification in the fields of law, finance, economics, accountancy, or administration with management skill and, experience of not less than twenty years in officer cadre;
(vi) is not more than sixty years as on the cut-off date provided in the advertisement issued by the Authority; and
(vii) any other qualification or condition(s) as may be laid down by the Authority, while inviting application.
(3) The post of chief executive officer may be filled up by the Authority on deputation or on contract basis.
(4) The period of appointment shall initially be for three years, unless terminated earlier, extendable by another two years only, subject to satisfactory performance review of the incumbent and mutual consent.
(5) Pay and allowances admissible to the chief executive officer may be equivalent to the grade of an executive director in the Authority. The candidate appointed on deputation basis would also have the option to draw pay and allowances as admissible to him in the parent organization. Such pay and allowances to the chief executive officer shall be borne by the National Pension System Trust.
(6) The contract for appointment may be terminated by the Authority or by the chief executive officer as the case may be, during the period of contract, by giving ninety days’ notice or by making payment in lieu thereof, without assigning any reasons therefor.
(7) The chief executive officer appointed on the basis of a contract shall not within two years from the date he finally ceases to be in the service of National Pension System Trust, accept or undertake any employment or be in any manner associated with an intermediary registered with the Authority or any of its holding company or sponsor of the pension fund, except with the prior written approval of the Authority.
(8) Other terms of contract shall be as laid down by the Authority or in case of deputation, as per the policy applicable in the Authority.”
IX. Sub-regulation (2) of regulation 9 of the principal regulations shall be substituted as follows:
“(2) The securities purchased by each pension fund in dematerialized form on behalf of, and in the name of the National Pension System Trust shall be held in the custodial account of the National Pension System Trust.”
X. Sub-regulation (4) of regulation 9 of the principal regulations shall be deleted;
XI. New sub- regulation (1A) shall be inserted immediately after sub-regulation (1) of regulation 10 of the principal regulations as follows:
“(1A) The board of trustees shall meet at least once every three calendar months.”
XII. Sub-regulation (4) of regulation 10 of the principal regulations shall be substituted as follows:
“(4) All matters which come up before any meeting of the board of trustees of the National Pension System Trust, shall be decided by a majority of votes, by trustees present and voting.”
XIII. Sub-regulation (5) of regulation 10 of the principal regulations shall be substituted as follows:
“(5) The chief executive officer:-
(a) shall be responsible for day-to-day administration and management of the National Pension System Trust, subject to the superintendence, direction and control of the board of trustees of the National Pension System Trust;
(b) shall be aided and assisted by the staff of the National Pension System Trust in discharging the affairs of the trust and shall be guided by the board of trustees in discharge of his obligations; and
(c) may also exercise such powers as may be delegated under regulation 41 for the effective discharge of his obligations and in achieving the objectives of the said trust.”
XIV. Sub-regulation (7) of regulation 10 of the principal regulations shall be deleted;
XV. Clause (x) of sub-regulation (2) of regulation 11 of the principal regulations shall be substituted as follows:
“(x) monitor the activities of and issue instructions to the custodian, not to assign, transfer, hypothecate, pledge, lend or otherwise dispose off assets of the National Pension System Trust, held by such custodian, except to the extent specifically permitted under any guidelines, circulars, directions and instructions issued, by the Authority, for the purpose;”
XVI. Clause (xii) of sub-regulation (2) of regulation 11 of the principal regulations shall be substituted as follows:
“(xii) appoint a panel of auditors to undertake scheme audits of each pension fund. The board of trustees shall also obtain internal audit reports at quarterly intervals from the auditors appointed by the pension funds, trustee bank, custodians, and in respect of central recordkeeping agencies for activities pertaining to exits and withdrawals under National Pension System. The reports of the auditor appointed by the board of trustees and internal audit reports or compliance reports shall be considered at the meetings of the board of trustees for appropriate action;”
XVII. Clause (xvi) of sub-regulation (2) of regulation 11 of the principal regulations shall be substituted as follows:
“(xvi) pay for all costs, charges and expenses, incidental to the administration of the National Pension System Trust and the management and maintenance of assets of the National Pension System Trust, the custodian’s fee, investment management fee and any other fee unless, otherwise provided by the Authority.”
XVIII. Clause (b) of regulation 12 of the principal regulations shall be substituted as follows:
“(b) it shall be responsible for approving audited scheme financials, examination of internal audit reports, compliance reports and any other reports, as determined by the Authority, which are to be submitted by the pension funds, trustee bank, custodian, and central recordkeeping agency(s) for activities pertaining to exits and withdrawals to the National Pension System Trust. Such approved scheme financials (inclusive of financial statements of the pension schemes and auditor report) and other reports shall be presented to the Authority with qualifications and recommendations, if any, made by it;”
XIX. Clause (f) of regulation 12 of the principal regulations shall be substituted as follows:
“(f) it shall carry out its duties and responsibilities and maintain arms‟ length relationship with other intermediaries, companies or institutions or bodies corporate with which the trustees may be associated:
Provided that if any trustee, has any direct or indirect pecuniary interest in any matter coming up for consideration at a meeting of National Pension System Trust, he shall, as soon as possible after relevant circumstances have come to his knowledge, disclose the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of National Pension System Trust, and the trustee shall not take part in any deliberation or decision of National Pension System Trust with respect to that matter;”
XX. Clause (g) of regulation 12 of the principal regulations shall be substituted as follows:
“(g) it shall be its duty to take into its custody or under its control all the assets of the National Pension System Trust, held by intermediaries;”
XXI. Clause (k) of regulation 12 of the principal regulations shall be substituted as follows:
“(k) it shall not acquire any asset out of the pension funds, which involves the assumption of any liability upon itself, which may result in encumbrance of the assets of the National Pension System Trust or that of the subscribers in any manner, except to the extent specifically permitted under any guidelines, circulars or directions issued by the Authority, for the purpose;”
XXII. Clause (m) of regulation 12 of the principal regulations shall be substituted as follows:
“(m) it shall be its duty to take all care to ensure that the assets are managed in accordance with the provisions of the Act, rules, regulations, trust deed, guidelines, circulars, directions and instructions issued by the Authority;”
XXIII. Clause (s) of regulation 12 of the principal regulations shall be deleted;
XXIV. New sub-clause (iia) shall be inserted immediately after sub-clause(ii) of clause(y) of regulation 12 of the principal regulations as follows:
“(iia) a statement of beneficial and material interest of trustee which he may have in any entity or institution or body corporate by virtue of his position as a director, partner, proprietor, employee or in any other capacity.
XXV. New clause (ze) shall be inserted immediately after the deleted sub-clause (zd) of regulation 12 of the principal regulations as follows:
“(ze) it shall adhere to common stewardship code, voting policy on the assets held in the name of National Pension System Trust and cyber security guidelines issued by the Authority.”
XXVI. Clause (b) of sub-regulation (1) of regulation 13 of the principal regulations shall be substituted as follows:
“(b) it shall ensure that the assets of the National Pension System trust are properly protected, held and administered by proper persons who are in adequate number;”
XXVII. Clause (a) of sub-regulation (2) of regulation 13 of the principal regulations shall be substituted as follows:
“(a) obtain internal audit reports at quarterly intervals from auditors appointed by the pension funds, trustee bank, custodian, and central recordkeeping agency(s) for activities with regard to exit and withdrawals, in terms of the scope provided by National Pension System Trust;”
XXVIII. New clause (aa) shall be inserted immediately after Clause (a) of sub-regulation (2) of regulation 13 of the principal regulations as follows:
“(aa) shall arrange for the conduct of internal audit of National Pension System Trust by a qualified auditor on a quarterly basis and submit the reports to the Authority within forty-five days from the end of each quarter along with their comments;”
XXIX. Clause (c) of sub-regulation (2) of regulation 13 of the principal regulations shall be deleted;
XXX. Clause (f) of sub-regulation (2) of regulation 13 of the principal regulations shall be substituted as follows:
“(f) ensure that the intermediaries dealt by the National Pension System Trust adhere to the code of conduct; and”
XXXI. Sub-regulation (1) of regulation 15 of the principal regulations shall be substituted as follows:
“(1) The Authority shall inspect National Pension System Trust at regular intervals as it deems fit.
Notwithstanding the above, it may at any time as it deems fit undertake directly or appoint an auditor or through its authorized representative conduct an inspection or audit of the books, accounts, records including the call records and electronic records and documents of National Pension System Trust for the purposes as specified under this regulation.”
XXXII. Sub-regulation (2) of regulation 15 of the principal regulations shall be substituted as follows:
“(2) The purposes referred to in sub-regulation (1) may include,-
(a) ensuring that the books of account, records including call records, electronic records and documents are being maintained in the manner required under these regulations;
(b) ascertaining whether adequate internal control systems, procedures and safeguards have been established and are being followed by the National Pension System Trust ;
(c) ascertaining whether the provisions of the Act, rules, regulations, guidelines, circulars, instructions and directions issued by the Authority are being complied with;
(d) inquiring into the complaints received from subscribers, intermediaries, or any other person on any matter having a bearing on the activities of the National Pension System Trust;
(e) inquiring suo motu into such matters as may be deemed fit in the interest of subscribers.”
XXXIII. Sub-regulation (3) of regulation 15 of the principal regulations shall be substituted as follows:
“(3) The Authority may, appoint one or more authorized representatives or, appoint a qualified auditor to undertake the inspection or audit referred to in sub-regulation (1).
Explanation.- For the purposes of this sub-regulation, the expression “qualified auditor” shall have the meaning derived from section 141 of the Companies Act, 2013 (18 of 2013);”
XXXIV. Sub-regulation (1) of regulation 17 of the principal regulations shall be substituted as follows:
“(1) It shall be the duty of every trustee, chief executive officer, other officer(s) and employee(s) of the National Pension System Trust, to produce to the Authority, its authorised representative or auditor such books, accounts, records including call records and electronic records and documents in his custody or control and furnish to the Authority with such statements and information relating to activities entrusted to trust by the Authority, as it or he may require, within such reasonable period as may be determined.”
XXXV. Sub-regulation (2) of regulation 17 of the principal regulations shall be substituted as follows:
“(2) The National Pension System Trust shall allow the Authority, its authorised representative or the auditor to have reasonable access to the premises occupied by it or by any other person on its behalf and also extend reasonable facility for examining any books, records including call records and electronic records and documents in the possession of the National Pension System Trust or any other person and also provide copies of documents or other material which in the opinion of the Authority or its authorised representative or auditor are relevant for the purposes of the inspection or audit.”
XXXVI. Regulation 18 of the principal regulations shall be substituted as follows:
“18. Submission of report to the Authority.- (1) On completion of the inspection or audit, a report shall be submitted to the Authority, who shall, after consideration of the report, take such action as it may deem fit and appropriate in the interest of the subscribers.
(2) The Authority may suo motu or after consideration of the inspection or audit report, as the case may be, order an investigation or inquiry to be conducted in the matter.
(3) The report submitted by the authorized person or any documents or information so collected by such person, during the course of inspection or audit, would be admissible in any investigation or inquiry or any other proceedings before the Authority.”
XXXVII. Clause (c) of regulation 36 of the principal regulations shall be substituted as follows:
“(c) shall ensure that its systems, processes and accounts are certified annually by an expert and the same is submitted to the Authority within one month of certification; and”
Dr. DEEPAK MOHANTY, Chairperson
[ADVT.-III/4/Exty./736/2023-24]
Note : The Pension Fund Regulatory and Development Authority (National Pension System Trust) Regulations, 2015 were published vide Notification No. PFRDA/12/RGL/139/5, on the 12th March, 2015 in the Gazette of India, Extraordinary, Part III, Section 4, No. 79, and were subsequently amended by the Pension Fund Regulatory and Development Authority (National Pension System Trust) (First Amendment) Regulations, 2019 published vide Notification No. PFRDA/12/RGL/139/5, on the 29th July, 2019 in the Gazette of India, Extraordinary, Part III, Section 4, No. 270, the Pension Fund Regulatory and Development Authority (National Pension System Trust) (Second Amendment) Regulations, 2020 published vide Notification No. PFRDA/12/RGL/139/5, on the 29th July, 2020 in the Gazette of India, Extraordinary, Part III, Section 4, No. 295, the Pension Fund Regulatory and Development Authority (National Pension System Trust) (Amendment) Regulations, 2021 published vide Notification No. PFRDA/12/RGL/139/5, on the 14th June, 2021 in the Gazette of India, Extraordinary, Part III, Section 4, No. 240 and the Pension Fund Regulatory and Development Authority (National Pension System Trust) (Amendment) Regulations, 2023 published vide Notification No. PFRDA/12/RGL/139/5, on the 17th April, 2023 in the Gazette of India, Extraordinary, Part III, Section 4, No. 240.
