Reliance fund ahead to manage NPS cash

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Disqualified HDFC fund challenges PFRDA move

Reliance fund ahead to manage NPS cash
Reliance Capital Pension Fund has emerged the lowest bidder from among nine aspirants to manage the national pension scheme (NPS) for the private sector. The pension fund quoted a fund management fee of one basis point (0.01 per cent) to outbid the rest.

An official from Reliance Pension Fund told Financial Chronicle the company had not received any formal communication from the Pension Fund Regulatory and Development Authority (PFRDA) and, therefore, would not be able to comment.

The total corpus of NPS as on February 28 was Rs 45, 515 crore, of which Rs 23,076 crore was the corpus of central government employees and Rs 19,003 crore was of state government employees.

The share of the private sector stood at Rs 2,649 crore, out of which Rs 787 crore was the funds under management of NPS Lite, a low-cost, feature-optimised model aimed at the economically-disadvantaged sections of society. The government had announced an incentive of Rs 1,000 for joining the scheme in the Union budget for 2012-13.

According to the bidding process terms and conditions, other bidders would be given the opportunity to match the fund management fee proposed by the lowest bidder. But several fund managers that Financial Chronicle spoke to said the fund management fee quoted by Reliance Capital Pension Fund was too low and unviable.

"One basis point is a frivolous bid, and it doesn't make business sense to manage funds at such a low fee," said the chief executive officer of a pension fund that had joined the bid.

Another asset manager, HDFC Pension Fund, has gone to court, challenging the PFRDA decision to disqualify it during the technical bidding process.

On January 16, PFRDA decided to appoint new pension fund managers to manage the NPS for the private sector, requiring all the existing eight fund managers to bid again for a licence. As per the request for proposal (RFP) floated by PFRDA, a fund manager would be appointed for a period of five years.

The objective was to further bring down the fund management fee for NPS subscribers from existing 0.25 per cent.

The bids were submitted till February 14 and were to be opened on March 27. Later, PFRDA postponed opening of bids till Wednesday.

Ten players, including the eight existing fund managers, joined the race. They were SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, DSP Blackrock Pension Fund Managers and HDFC Pension Fund and two new players — Tata Mutual Fund and Birla Sun Life Insurance.

HDFC Pension Fund was disqualified during the technical bidding process. The fund has since challenged the PFRDA decision at the Delhi high court, which on Wednesday inter alia directed PFRDA to open its technical bids along with the bids of other bidders and evaluate the same in accordance with the law. The commercial bids were opened on Wednesday.

In an email statement to Financial Chronicle, HDFC Life Insurance (the promoter of HDFC Pension Fund) said: "HDFC Life Insurance has challenged the PFRDA request for proposal, the NPS licence process and the wrongful disqualification/rejection of HDFC Life's bids. This is an unfortunate development, but the company was left with no other option."

It claimed, "Upholding our contention the court has inter alia directed PFRDA to open our technical bids along with the bids of other bidders and evaluate the same in accordance with the law."

"HDFC Pension is a licensed pension fund manager appointed by PFRDA to manage pension corpus of citizens enrolled under the new pension system. Surprisingly, PFRDA introduced a relicensing process early this year, and we understand, it has now unfairly disqualified us at the technical bid stage, thus barring us from getting shortlisted for the next stage of the licensing process," the statement added.

Last time, a competitive bidding to manage the pension corpus took place in 2009 when D Swarup was PFRDA chairman. The bidding process brought down the fund management fee to 0.0009 per cent of the assets managed. In 2011-12, the then PFRDA chairman Yogesh Agarwal decided to increase the charge to 0.25 per cent.

The current bidding process was a departure from the earlier process, which allowed any technically qualified fund management company to enter as a fund manager as long as it is ready to charge a fund management fee of 0.25 per cent of the asset under management.

"To transparently and competitively determine key aspects like the investment management fees, which have a significant impact on the terminal pension wealth of the subscribers, PFRDA in subscribers' interest and in exercise of powers inherent in it proposes to select and appoint afresh, eight competing professional pension funds (PFs) to manage the pension assets of the private sector NPS. PFRDA reserves the right to appoint more or less numbers of PFs," the RFP floated by PFRDA said.

PFRDA appointed three pension funds in 2012 to manage the pension assets of government employees covered under NPS. In 2013, the regulator registered eight pension funds to manage the pension assets of the private sector. It now intends to appoint eight pension funds afresh to manage the NPS contributions of private sector NPS.

The three pension funds — LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions — that manage pension assets for government employees were not required to submit any technical proposal, but just submit commercial bids.

While NPS was launched with much fanfare, it has not taken off at the desired pace mainly due to low awareness and lack of enough tax incentives for retail customers to invest.

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