Pension Fund Regulatory and Development Authority (PFRDA) is planning to float the request for proposal (RFP) for selection of pension fund managers (PFMs) by mid-December.
In an interaction with Moneycontrol, PFRDA chairman Supratim Bandyopadhyay said that a committee set up for this purpose will look into the charge structure, floor cap and then the tender process will begin.
"If an applicant is technically qualified irrespective of the quote, the RFP will be sent for approval," he added.
In the earlier RFP process that was held in 2014, the lowest bid of 1 paise for every Rs 100 of NPS funds was selected as the final pension fund management fee. Reliance Capital Pension Fund who had then made this lowest bid announced its decision to exit the sector in 2019. All its assets have now been transferred to LIC Pension Fund.
Currently, LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions are the pension fund manager for the public sector whereas for the private sector apart from these three there are four others including HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund and Aditya Birla Sun Life Pension Management.
Bandyopadhyay said that the idea is to make the fund management business sustainable for the player.
"Matching the lowest bid was an unrealistic method to select pension fund managers. We now want to correct the situation," said the PFRDA chairman.
He also added that if the fund management fee is higher, then the PFMs will also be able to hire better manpower and improve their IT infrastructure, both of which are costly.
The PFRDA chairman said that the regulator is hoping for new sponsors to enter the sector. Unlike the five-year licence validity, the new proposals will allow for a perpetual licence.
"We are increasing the capital limit for PFMs from Rs 25 crore to Rs 50 crore. When they are committing such additional funds, these entities would also need a long-term sustainable revenue model. Our new tenders will match their needs," he added.
Changes in NPS structure
PFRDA regulates the National Pension System (NPS). The PFRDA chairman said that some changes are being proposed in this product including some systematic withdrawal plans as well as flexible annuities.
However, these changes are part of the PFRDA Amendment Bill which is now likely to be tabled in the winter session of the Parliament. Since the monsoon session was cut short, the bill could not be introduced.
Bandyopadhyay explained that the new system could have a form of systematic withdrawal plan (SWPs) or payout within the funds. This, he said, would give additional options to the subscribers since these individuals can decide whether to opt for annuity plans or for SWPs.