Cost structure for pension fund managers of NPS likely to change soon, says PFRDA Chairman

The pension regulator is relooking at the cost structure for pension fund managers and other intermediaries and plans to revise their rates well ahead of appointing more fund managers.

“We are doing a cost-benefit analysis and definitely very soon we will see some changes in the cost structure for pension fund managers and other intermediaries also,” Supratim Bandyopadhyay, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), said on Friday.

The regulator will invite request for proposals (RFP) from pension fund managers by December so as to offer a wider choice to subscribers, Bandyopadhyay said in a virtual conference hosted by the Confederation of Indian Industry.

“The RFP for pension fund managers may take about two and a half months,” he said. “By December definitely we will see the RFPs out, and everybody is welcome.”

While the cost of the National Pension System is one of the lowest in the world, it cuts both ways, Bandyopadhyay said. Subscribers to NPS are currently charged 0.01% of the corpus as fund management charge.

This means low revenue streams for pension fund managers who have to account for brokerage charges, audit fees, and other costs. Bandyopadhyay had earlier said that fund managers’ revenues were very low and needed to be increased in order to attract talent from the market.

PFRDA has been keen to appoint additional pension fund managers to offer a wider choice to subscribers and received the finance ministry’s nod for it in December last year.

At present there are eight pension fund managers under NPS, including SBI Pension Funds, UTI Retirement Solutions and LIC Pension Fund.

While there might not be any restrictions on the number of pension fund managers, “there will be some entry barriers to see that only very serious players should come”, Bandyopadhyay said.

The Atal Pension Yojana (APY) continued to be the most popular scheme under NPS with 400,000 customers being added in the 15 days of September, Bandyopadhyay said, bringing the total new subscribers this fiscal under APY to 2.4 million.

However, the assets under management (AUM) for the APY was low at Rs 12,800 crore compared to other schemes since it is largely aimed at the unorganised sector where most subscribers opted for the Rs 1,000 per month plan, he said.

The corporate sector’s contribution to total AUM stood at a little over Rs 50,000 crore this fiscal, the PFRDA chairman said. India has a long way to go in terms of bridging the gap between its pension coverage metrics and that of advanced countries, he said.

The country’s total pension assets to gross domestic product was only 10% compared to about 100% in countries like the Netherlands and Switzerland and around 80% in the US.