Pension fund managers permitted to charge higher fees wef 1 April

India's pension regulator is allowing 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) 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, reported LiveMint quoting a person with knowledge of the matter on condition of anonymity.

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.

According to the RFP issued on 23 December 2020, 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 table below summarises the fee caps:

Licensing

Three candidates—Axis Asset Management, DSP Investment Managers and Tata Asset Management—applied for PFM licences in the new round. However, only Axis Asset Management has been successful in securing a licence, the second person confirmed.

Previously, there were eight PFMs in India. Among them, so far, five have received licences in the fresh round of bidding, along with approvals to charge higher fees.

Source: Asia Insurance Review