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Pension regulator PFRDA has now taken a big initiative to revamp the pension funds management structure in India and position the industry for strong decadal growth that could take the overall assets under management of the National Pension System (NPS) to ₹30-lakh crore by 2030.
The regulator has now come out with a new Request for Proposal (RFP) for selection of sponsors of pension funds for NPS, throwing open the door for more pension fund managers with at least five-fold jump in their fees, making it lucrative for serious players to take a deep dive into this industry.
BusinessLine spoke to PFRDA Chairman Supratim Bandyopadhyay to get into the nuts and bolts of this reform process. Excerpts:
What is the objective of bringing the RFP?
It is to expand the number of players (only serious) in the pension industry and ensure that existing as well as new players are better remunerated in terms of fund management fees in line with the size of their operations.
How is the latest RFP different from the earlier one?
This latest RFP has several firsts to its credit. This is the first time we have come out with a combined RFP — both for the government and private sector. For the government, the last RFP was in 2012 and in 2013-14 for the private sector. They had different structures and restrictions.
The Government was open for certain state-controlled pension fund managers and the private sector was open for all. In April 2019, the government had allowed even private pension fund managers to manage NPS funds of government schemes. Now, there is no distinction between government, PSU or private pension fund managers.
Which are the other firsts?
This is the first RFP where we have specified a slab structure for investment management fee. In the earlier regime, it was a flat fee. We have now gone in for a graded slab structure (four slabs from 3 paise to 9 paise) so that the new entrants to this field will not find it difficult to build a corpus. This will help them achieve scale while meeting their early establishment expenses. From a previous regime fee level of 1 paisa for every ₹100 of pension funds managed, we are now proposing an average fee of 5 paisa per ₹100 of pension monies managed. This is a five-time increase. This effective fee of about 5 paise is the cheapest in the pension world and our pricing is the most competitive.
With increase in fee structure, we expect pension fund managers to profit while having funds for building infrastructure and support team. We have found a balance that will not be too heavy on the wallets of subscribers and, at the same time, support the pension fund managers too. When the fee was 1 paisa, new sponsors were not very keen to enter this space.
Any other significant change this time round?
Earlier, we had a control on the number of fund managers and specified it as 10. This time, any number of fund managers can come as long as they fulfil our criteria. Anybody with five years experience of fund management on debt and equity and monthly average AUM of ₹50,000 crore for the last 12 months can apply.
We see strong interest already and, by January 22 (last date for submitting applicants); expect at least 15-16 serious applicants. The other significant decision we have taken is that licenses will be granted for perpetuity. Last time, we had allowed licence term of only five years or until a new RFP is issued. The new licence will have to be renewed every year. We have also this time round not stipulated that other bidders should match the fee proposed by the bidder with the least quote. There is no such compulsion this time.
Where do you see pension assets growing this fiscal and in the next decade?
We are on course to achieve assets under management of close to ₹6-lakh crore by end March this fiscal. This is going by the growth seen in the first nine months this fiscal. We had started the fiscal with AUM of ₹4.17-lakh crore and already touched ₹5.5-lakh crore by end December 2020. We have been growing at 35 oer cent CAGR and by this trend achieve AUM of ₹30-lakh crore by 2030.
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