The Board of the pension regulator, Pension Fund Regulatory and Development Authority (PFRDA), has given its approval to award licences to pension fund managers under its recently floated Request for proposal (RFP), for selection of sponsors of pension funds for National Pension System (NPS).

It may be recalled that as many as ten applicants, including new ones such as Tata Asset Management Company, DSP Investment Managers (India) Pvt Ltd and Axis Asset Management, had made applications under the new RFP floated by the pension regulator in mid-December last year.

New fee structure opens the doors wider for pension fund managers: PFRDA chief

The PFRDA Board recently approved the names and the letter of awarding licences will reach the successful applicants by the end of this month, sources close to the development said.

It is likely that most of the ten applicants will get licences in the latest round, they added. This will be the first time that licences are expected to be awarded for perpetuity.

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The seven fund managers who already manage NPS funds and had applied in the latest round are the pension arms of SBI, UTI, LIC, ICICI, HDFC, Aditya Birla Sun Life and Kotak.

Besides throwing open the door to more pension fund managers, the recent RFP had introduced at least five-fold jump in their fees, making it lucrative.

The Pension Fund Regulatory and Development Authority had taken this 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 NPS to ₹30-lakh crore by 2030.

The main objective behind the RFP 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.

Several firsts

This latest RFP had several firsts to its credit. This is the first time PFRDA had 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 sector NPS monies was open for certain state-controlled pension fund managers and the private sector schemes 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.

This is also the first RFP where PFRDA had specified a slab structure for investment management fee. In the earlier regime, it was a flat fee.

PFRDA has 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, PFRDA has now proposed 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 PFRDA pricing is the most competitive.

With increase in fee structure, it is expected that pension fund managers will make profit while having funds for building infrastructure and support team.

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