The government on Friday notified a hike in the foreign direct investment (FDI) limit in pension fund management to 74% from 49% under the national pension system (NPS), opening doors for experienced foreign partners in this space and facilitating more competition in the fledgling segment.
The higher foreign investment limit in pension fund managers (PFMs) follows a Parliament nod in March to hike FDI limit in insurance business to 74% from 49%.The Pension Fund Regulatory and Development Authority (PFRDA) Act links the FDI ceiling in the sector to the same in the insurance sector.
Four out of seven PFMs managing the NPS corpus namely HDFC Pension Management, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Aditya Birla Sun Life Pension Management have significant foreign investments. LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions are the other three PFMs for NPS.
NPS assets under management (AUM) stood at about Rs 6.2 lakh crore as on July 10, 2021. Recently, the PFRDA chairman Supratim Bandyopadhyay told FE that NPS AUM may rise over 30% year-on-year to near Rs 7.5 lakh crore in FY22.
To incentivise PFMs, which were charging a paltry 0.01% as fund management fee, the PFRDA recently permitted them to charge up to 0.09% if the PFM’s AUM is less than Rs 10,000 crore, 0.06% for AUM up to Rs 50,000 crore, 0.05% for AUM between Rs 50,000-1,50,000 crore and 0.03% for AUM above Rs 1,50,000 crore.
To foster further competition in the pension sector, the PFRDA has also allowed more fund managers to enter into the NPS sector by applying to the regulator at any point (on tap) in time in FY22.
After stagnating for over a decade, the NPS was gaining traction in the private sector with about 10 lakh new subscribers expected to join it in FY22, Bandyopadhyay had said. Higher tax-saving potential and attractive returns vis-à-vis other traditional products are seen spurring demand for NPS. Despite the pandemic, nearly 6 lakh new private subscribers (corporate employees and citizens) joined the NPS in FY21, up from about 5 lakh in FY20.
With the government sector reaching near saturation, private sector, which hitherto was 7% of total subscriber base, holds key to the growth of NPS as well as expansion of old age income for masses.