Tata Asset Management, DSP Investment Managers and Axis Asset Management apply for licences

Pension regulator PFRDA has received 10 applications including three from new ones for the Request for Proposal (RFP) it had floated for selection of sponsors of pension funds for National Pension System (NPS).

While seven of these are from existing pension fund managers, the three new ones are Tata Asset Management Company, DSP Investment Managers (India) Pvt Ltd and Axis Asset Management, sources close to the development said.

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

PFRDA issues RFP for selection of pension fund sponsors

It maybe recalled that PFRDA had in December 2020 come out with a new 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.

The Pension Fund Regulatory and Development Authority (PFRDA) 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.

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.

Slab structure

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.

Strong show: Pension assets surge 35.65% as of November 2020

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.