Money & Banking

Private sector NPS: Market-oriented reforms hit FDI hurdle

KR Srivats New Delhi | Updated on January 09, 2018 Published on November 29, 2017

Hemant Contractor, Chairman, PFRDA,

You may have to wait for some more time before ‘differential pricing’ regime for pension fund managers (PFMs) can be a reality in India.

This is because the pension regulator, PFRDA, has scrapped its recent revamped process for selection of pension fund managers (PFMs) to manage private sector schemes under the National Pension System (NPS).

Over the last one year, PFRDA has been looking to allow a “differential pricing” regime for PFMs and had invited bids for appointment of 10 PFMs, moving away from the earlier one-size-fits-all approach of selection on the ‘L1’ price basis (lowest price bid).

Allowing “differential pricing” among PFMs would have opened a new area of competition, bringing in competition in terms of, among others, fee structure and servicing standards.

A market-driven approach would have forced PFMs to disclose more information and provide greater value to subscribers for their fees.

This (allowing differential pricing) was a way of saying that PFRDA recognised that there are PFMs of different capabilities, cost structures and business models and, therefore, fee structures could be allowed to vary among them.

“Our Board has recently annulled the entire process. We will go in for fresh tenders again once certain clarification comes from the government on the FEMA issue,” Hemant Contractor, Chairman, PFRDA, told BusinessLine.

The process had to be scrapped in the absence of clarity from the government as to how foreign investment at the level of the sponsors of pension fund managers should be counted for determining the FDI cap at the level of pension entities, according to Contractor.

However, he said this does not mean that PFRDA will not in the future consider allowing “differential pricing” regime among PFMs who manage private sector schemes of NPS.

“We have not decided to completely abandon it (differential pricing). It may still come about when we invite bids again under a new selection process,” Contractor said.

Contractor said that the Finance Ministry and the Reserve Bank of India are in discussions on this issue of how foreign investment levels can be computed for downstream companies in the pension sector.

PFRDA is keen that the method adopted in the insurance sector on this front should also be done for the pension sector.

Total AUM

Currently, the total assets under management for the private sector schemes under NPS stood at over ₹15,000 crore.

In the Request for Proposal (RFP) issued last year — which has now been scrapped — PFRDA had capped the investment management fee at 0.1 per cent per annum (10 basis points).

Effectively, a prospective PFM could have quoted any price up to 10 bps as management fee.

As many as nine bidders — six from private sector and three from public sector — had participated in the RFP that came out last September. They had bid for a management fee that ranged from 0.07 per cent to 0.1 per cent.

Now that the entire process of selection of new PFMs has been scrapped, Contractor said that staus quo will be maintained and the current crop of eight PFMs, including three public sector ones, will continue to manage the private sector schemes under NPS.

Published on November 29, 2017
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