More pension fund managers by December, expense ratio to be relooked: PFRDA

Soon, National Pension System (NPS) subscribers could have a longer list of fund managers to choose from for managing their voluntary retirement contributions.

“We will be coming out with our RFP (request for proposal) in another 2-2.5 months. So, by December, the RFP should be out. Everyone is welcome to come and manage it. It will not be restrictive (in terms of numbers), but there will be entry barriers to ensure only serious players come in,” said Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority of India (PFRDA), at the CII Insurance and Pensions Summit on Friday.

On-boarding more fund managers

At present, the NPS corpus is managed by seven pension fund managers – SBI Pension, UTI Retirement Solutions, LIC Pension, ICICI Prudential, HDFC Pension, Birla Sun Life Pension Scheme and Kotak Pension Fund.

Earlier, in an interview to Moneycontrol, Bandyopadhyay had said that the PFRDA was looking to increase the number of fund managers as also the expense ratio. At 0.01 per cent, it is amongst the lowest in the world. He reiterated the PFRDA’s intention of looking at changes in the pension fund management cost structure.

He also pointed to lower annuity rates offered by life insurers empanelled with the NPS Trust. Subscribers have to compulsorily use 40 per cent  of their NPS corpus at maturity to buy annuities from these seven life insurers. “Some annuity service providers (designated life insurers) provide returns of less than six per cent. We have received queries from subscribers saying that while their pension funds generate higher returns during the investment phase, they get locked into lower rates at annuitisation,” he said.

On life insurers’ stance that the relatively lower returns were on account of annuity payouts being guaranteed for life, along with return of corpus, he suggested variable, market-linked annuities. “People have now started understanding market-linked, variable returns. The six per cent can come down to 5 per cent or go up to 6.5 per cent or higher. It can be linked to a benchmark, reset at one-year intervals and so on,” he suggested.

He also highlighted PFRDA’s decision to allow digital and video KYC for on-boarding subscribers, particularly during the lockdown period. “Aadhaar can be used for the on-boarding process. We have also allowed OTP-based on-boarding. Most NPS distributors are regulated by the Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI), which have approved video-based KYC. So, we have approved it as well,” he added.