Money & Banking

Pension fund managers: ‘Floor’ and ‘cap’ concept to be introduced in RFP

KR Srivats New Delhi | Updated on September 30, 2020

PFRDA Chairman Supratim Bandyopadhyay

Unlike last time, there will be no insistence on matching the lowest bid, says PFRDA chief

The Pension Fund Regulatory & Development Authority (PFRDA) proposes to bring in a slew of changes in the upcoming Request for Proposal (RFP) for Pension Fund Managers (PFMs) including the introduction of concept of ‘floor’ and ‘cap’ as criterion for deciding the fund management fees that could be charged by them.

These changes are part of the PFRDA efforts to bring in new serious players and enhance competition in the pension fund management market, which currently only has seven PFMs.

In an interview with BusinessLine, PFRDA Chairman Supratim Bandyopadhyay said that the Board has in principle approved that RFP can be issued and this could be issued by the regulator in December. Also, the Board has given approval for a six-member committee — four from PFRDA, one from mutual fund industry and one from another regulatory body — to review the PFMs charge structure, which is widely considered to be pretty low now going by industry standards.


Removing glitches

“We are now trying to remove through the upcoming RFP almost all of the difficulties faced by PFMs in recent years. The difficulties included low fees...Every body was asking for raise in the charges. This committee will recommend both a ‘floor’ and ‘cap’ for the fees. This will be adopted so that predatory pricing will not be allowed. Those applying below the floor, their application will be rejected,” Bandyopadhyay said.

He ruled out introduction of any market oriented fee structure for PFMs in future.

He said that the upcoming RFP will be a single one for managing both government and private sector NPS schemes. This is being done because from April 1, 2019, central government employees can choose other private sector fund managers also, apart from the default ones. On the foreign direct investment front, he said that the earlier uncertainty on the policy has been sorted out and this has been conveyed to the PFMs.

Also, PFRDA will not insist on the other bidders to match the fee proposed by the bidder who has quoted the least.

Tweaking the norms

“There won’t be a concept of single winning bid. All those who fall between the ‘floor’ and ‘cap’ will be accepted so long as they qualified on the technical side of the bid. Unlike last time, matching with the lowest bidding price will not be insisted for others. We want to remove this thought of matching the lowest from every prospective bidder. Otherwise they will be afraid on who is going to be the lowest price bidder etc,” he said.

It maybe recalled that last time round the RFP for PFMs in private sector got into a legal tangle after one player bid fees at near zero levels, forcing others to match this rate. There was no floor or cap fixed on the fees and matter got dragged to the High Court, leading to the scrapping of the entire process to rope in new PFMs.

The PFRDA Chairman said that total assets under management of NPS grew 18-19 per cent between end March and September 26 despite the impact of coronavirus pandemic.

“We have reached almost ₹5 lakh crore, but not there as yet. We were expecting to reach this milestone on September 30 but don’t think so due to interest rate volatility,” he said.

Published on September 30, 2020

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