Pension Fund Regulatory and Development Authority has slashed investment management fees to 0.01% of asset under management (AUM) from 0.25% to ensure higher returns for private sector subscribers of the National Pension System (NPS), a move aimed at making the scheme competitive with other asset classes such as EPF, PPF and bank fixed deposits.
While the move may crimp profit margins of pension fund managers, PFRDA chairman RV Verma told FE this will raise the return on NPS by about 24 bps for investors. "NPS will become more economical for subscribers by reducing costs and raising the returns," he said.
This should spread cheer among investors who were unhappy with the higher management charges on their long-term savings as the choppy market condition last year has muted gains. The charges for private employees are equal to that charged on government employees and workers of the unorganised sector who are part of the NPS Lite or Swavalamban scheme.
In 2012, the PFRDA raised fund management charges for the private sector to 0.25% of AUM following demands from pension fund managers who complained of low incentives to manage NPS funds.
In January this year, the PFRDA called for fresh bids from fund managers to manage NPS corpus. Based on the request for proposal for selection of PFMs for private sector, the investment management fee has been revised to 0.01% effective from August 1.
Since the launch of NPS corporate model in 2011, over 1,390 private companies have enrolled about 2.9 lakh employees in NPS. The total amount invested by private sector employees in NPS was a little over R3,380 crore in less than three years. Since inception in 2004, the NPS subscriber base has grown to about 70 lakh.