PFRDA issues new norms for registration of pension fund managers

Pension fund managers are allowed to prescribe their own fee charges, subject to an overall ceiling to be laid down by PFRDA

July 17, 2012 9:55 IST | India Infoline News Service
To increase the penetration of National Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has relaxed norms for registration of pension fund managers.

According to the revised guidelines issued by the pension regulator, there would be no limit on the number of pension fund managers for managing the retirement corpus under non-government and private sector segment. The new guidelines have done away with the bidding process for appointment of fund managers. Henceforth, any eligible company can undertake the business of fund management under the NPS.

The new guidelines said, pension fund managers would have to market the NPS to the potential subscribers, deciding their own marketing and distribution channels as per their business perceptions. Further, the pension fund managers are now allowed to prescribe their own fee charges, subject to an overall ceiling to be laid down by PFRDA. It is expected that this would provide for an economically viable business model for the pension fund managers attracting a fresh set of entrants into the pension industry, and the resultant competition would ensure market driven fee structures, which would work to the advantage of the pension subscribers.

Anil Rego, CEO, Right Horizons, said, “It is a welcome move to add more pension fund managers since each one would try to reach out to a cross section of public to enroll more subscribers. As has happened with the mutual funds industry where competition has helped get more subscribers to the equity markets and grow the AUM (assets under management), similarly we believe that this could add to higher penetration of the pension products deep into the hinterland. However, just like the mutual fund industry, where a handful of asset managers have bulk of the AUM, we believe that over time there could be only a few pension fund managers who could end up getting most of the pension fund corpus. But this happens to be a starting point to grow the penetration.”

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, said, “Increasing the number of fund managers will not make the NPS popular overnight. The scheme, according to me, is neither flexible nor transparent, as we would like to know and compare the fund performance before advising it to our client. Any upward revision in the charges by pension fund managers shall reflect in the performance and should not lead to extra cost to investors.” 
Mr Rego further added, “Since there will be competition to grow the AUM and business, freedom to charge fee structure would not be detrimental to the subscribers at all. It would in fact aid to lower the cost of offering the pension fund charges over the medium term. In the short term though there could be drastically high competition and non-serious player cold offer anti-competitive structure which would be a short term negative for the industry. In the medium term, the players who have the ability, get critical size and offer scalable products, will win the AUM battle and remain profitable.”

The NPS has not achieved any significant progress in the private sector, despite passage of considerable time, and these guidelines have been awaited by the industry for quite some time. The changes are as per the recommendations of the Bajpai Committee, set up by PFRDA to study the reasons for the slow progress of NPS in the private sector. The final guidelines have been issued subsequent to intensive discussions with all stakeholders, including pension fund managers and suggestions received from pension subscribers.

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