Business & Investment

The new fee structure opens the door for pension fund managers. PFRDA Chief

PFRDA, the pension regulator, is now restructuring India’s pension fund management structure, a powerful decade capable of raising overall assets under the control of the National Pension System (NPS) to Rs 300,000 by 2030. We have taken a major initiative to position the industry for growth. ..

Regulators are now announcing a new request for proposal (RFP) to select sponsors for NPS pension funds, opening the door for pension fund managers whose fees have jumped at least five-fold, bringing serious benefits. .. A player who digs deep into this industry.

BusinessLine We spoke with PFRDA Chairman Supratim Bandyopadhyay about the key points of this reform process. Excerpt:

What is the purpose of implementing an RFP?

To increase the number of players in the pension industry (only serious players) and ensure that existing and new players are rewarded in terms of fund management fees based on business size.

How is the latest RFP different from the previous one?

This latest RFP has some first achievements. This is the first time that both the government and private sectors have announced a combination of RFPs. For the government, the last RFP was 2012, and for the private sector it was 2013-14. They had different structures and limitations.

The government was open to certain state-owned pension fund managers, and the private sector was open to everyone. In April 2019, the government allowed even private pension fund managers to manage NPS funds in government schemes. Currently, there is no distinction between government, PSU, or private pension fund managers.

Which is the first one?

This is the first RFP to specify a slab structure for investment management fees. In the previous regime, it was a flat rate. We have adopted a gradual slab structure (4 slabs from 3 to 9 slabs) so that new entrants to this field do not have difficulty building a corpus. This helps them achieve scale while meeting the initial establishment costs. From the previous institutional fee level of 1 Paisa for every £ 100 managed pension fund, we are now proposing an average fee of 5 Paisa for every £ 100 managed pension fund. This is a 5-fold increase. This effective rate of about 5 pays is the cheapest in the world of pensions and our pricing is the most competitive.

With the expansion of the fee structure, pension fund managers are expected to profit while securing the funds to build infrastructure and support teams. We have found a balance that does not overwhelm the subscriber’s wallet and at the same time supports the pension fund manager. The new sponsor wasn’t too keen to get into this space when the price was one paisa.

Are there any other important changes this time around?

Previously, I managed the number of fund managers and specified it as 10. This time, any number of fund managers can participate as long as they meet the criteria. Anyone with 5 years of experience in managing debt and equity funds and an average monthly AUM of 50,000 chlores over the last 12 months can apply.

There is already strong interest, by January 22 (the final submission date of the applicant). Expect at least 15-16 serious applicants. Another important decision we have made is that the license will be granted permanently. Last time, we allowed a license period of just five years, or until a new RFP was issued. New licenses need to be renewed annually. It also does not stipulate that other bidders must match the lowest quote with the price offered by the bidder. There is no such compulsion this time.

Where do you think pension assets will grow this year and over the next 10 years?

By the end of this year, we plan to achieve assets under management of nearly 60,000 rupees. This is due to the growth seen in the first nine months of the year. We started accounting at 4.17 Lark Chlore and by the end of December 2020 we had already reached 5.5 Lark Chlore. Growing at a CAGR of 35oercent, this trend has led to an AUM of 30 Lark Chlore by 2030.

The new fee structure opens the door for pension fund managers. PFRDA Chief The new fee structure opens the door for pension fund managers. PFRDA Chief

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