SBI Pension Funds Pvt. Ltd and LIC Pension Fund Ltd made the lowest bids at 0.07% (or 7 basis points) for fund management charge out of the nine companies that had bid for pension fund management under the private sector National Pension System (NPS) . One basis point is one hundredth of a percentage point.
The Pension Funds Regulatory and Development Authority (PFRDA) opened the financial bids on 30 November. As per the request for proposal, the pension funds regulator aimed to select 10 pension fund managers, however, only nine bids were received. “We would have seen a greater interest among fund managers if the government NPS was opened to the private sector pension fund managers as well,” said R.V. Verma, whole-time member, finance , PFRDA.
According to the NPS Trust website (http://npstrust.org.in), the total asset under management (AUM) of the government sector as on 31 October 2016 stood at Rs1.36 trillion, whereas for the private sector (corporate sector plus the unorganised sector), it was only Rs14,520 crore.
Currently, only the public sector pension fund managers manage the government sector NPS money namely: LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions Ltd.
The Bajpai committee that was set up to review the investment framework recommended allowing private fund managers to manage government’s pension funds too. This is still under deliberation.
Following the bids for the private sector NPS this year, the pension regulator will be finalising the pension fund managers in a couple of week’s time, say industry sources.
Both DSP BlackRock and ICICI Prudential Fund Management Co. Ltd have bid to charge 0.1% as fund management fee, which is the maximum allowed in this round of bidding.
UTI Retirement bid 0.8%, whereas Reliance Capital Pension Fund Ltd bid 0.0849%. In 2009 when the NPS auction happened for the first time, UTI Retirement had bid the lowest at 0.0009% and in 2014 during the second auction, Reliance bid the lowest at 0.01%. This is the fund management charge that all the fund managers levy currently.
This year, Kotak Mahindra Pension Fund Ltd bid at 0.0895%, HDFC Pension Management Co. Ltd at 0.099%, whereas Birla Sun Life Pension Management Ltd at 0.099%.
Speaking of the bids, Sumit Shukla, chief executive officer, HDFC Pension, said the public sector fund managers have quoted the lowest, either on the back of already existing substantial assets under management or the potential to scale up. “The bidding has been sensible in the sense that nobody has tried to go rock bottom,” he said. “Now the challenge before us is to scale up quickly because without that we will continue to be under water,” Shukla added.
The structure of this auction was different from the previous two auctions. This time, instead of forcing all the bidders to accept the lowest bid made by any company (also known as racing to the bottom), PFRDA put a cap on the fund management fee that could be charged—0.1% or 10 basis points, a 10 times jump from the current fund management charge of 0.01%. So, the pension fund managers could bid within this limit, and all could charge differently.
“It was a conscious decision to offer differential pricing as one size fits all approach may not have worked with companies having different cost and revenue models,” Verma said, adding that fund managers who charge higher will have a greater onus to improve returns and service so that they can continue to be competitive in the market.