Pension fund managers can charge more
Under PFRDA rules both direct and indirect ownership has to be considered while calculating the FDI cap
The pension regulator has allowed pension fund managers (PFMs) to charge their customers higher fees from 1 April, a move that could attract more foreign investment in the sector.
The Pension Fund Regulatory and Development Authority (PFRDA) had proposed the higher fee structure in a request for proposals (RFP) issued in 2020. This was to take effect after a new round of licensing for PFMs, which has now concluded, said a person with knowledge of the matter on condition of anonymity.
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Alongside higher fees, the pension sector is set to get a boost with the foreign direct investment (FDI) cap in insurance raised from 49% to 74%. This is because FDI in pension is linked by the PFRDA Act to FDI in insurance. However, under PFRDA rules, both direct and indirect ownership have to be considered while calculating the FDI cap.
“With the hike in fees, most PFMs will turn profitable. The old cap of 0.01% of assets under management (AUM) on fees forced PFMs to operate with extremely low costs. The new cap will allow most to turn profitable," said the person cited above.
This, in turn, could invite interest from foreign players, especially with the new raised FDI cap in pension. According to the RFP issued on 23 December, PFM fee caps will be set on a graded basis linked to the assets managed by the PFM with the cap reducing for higher levels of assets.
The maximum cap has been set at 0.09% for AUM up to ₹10,000 crore. PFMs with AUM from ₹10,001 crore to ₹50,000 crore will be allowed to charge fees up to 0.06%. Those with AUM from ₹50,001 crore to ₹150,000 crore will be allowed to charge fees up to 0.05%. Finally, PFMs with AUM above ₹150,000 crore will be allowed to charge a maximum fee of 0.03%.
As of January 2021, the National Pension System (NPS) had 9.8 million subscribers (excluding Atal Pension Yojana and NPS Lite, which operate under different rules). Its AUM calculated on similar lines was around ₹5.56 trillion. However, the bulk of assets are managed by three public sector PFMs—SBI Pension Fund Pvt. Ltd, UTI Retirement Solutions Ltd and LIC Pension Fund Ltd.
A second person with knowledge of the development confirmed that five PFMs have received licences in the fresh round of bidding—SBI Pension Fund Pvt. Ltd, LIC Pension Fund Ltd, UTI Retirement Solutions Ltd, HDFC Pension Fund Company Ltd and ICICI Prudential Pension Fund Management Co. Ltd, along with approvals to charge higher fees.
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In case of Kotak Mahindra Pension Fund Ltd, a change in sponsor has delayed approval for charging the higher fees while in case of Aditya Birla Sun Life Pension Management Ltd, the approval for charging higher fees has been held up by the sponsor not meeting the condition of ₹50,000 crore of assets under management for a period of one year.
Three new players—Axis Asset Management Co., DSP Investment Managers and Tata Asset Management Co.—had applied for PFM licences in the new round. However, only Axis Asset Management Co. has been successful, the second person confirmed.
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