New Delhi:Competition for managing India’s ₹1.61 trillion central government pension pool is expected to rise, after the pension regulator Monday allowed subscribers to switch their corpus to any pension fund manager (PFM) of their choice.
Last year, the Pension Fund Regulatory and Development Authority (PFRDA) allowed employees to change pension fund managers as well as plans for fresh contributions from 1 April 2019.India has eight pension fund managers, who manage three plans—conservative life cycle fund with equity capped at 25%, moderate life cycle fund with equity capped at 50%, or 100% allocation to government bonds.
Monday’s circular builds on last year’s changes and, coupled with an expected hike in fee cap for pension fund managers in December, may attract new entities to a low-margin segment of India’s financial services market. “Less than 1,000 existing central government subscribers have exercised this choice to switch. This has allayed concerns among the regulatory officials that the system would be overwhelmed by money moving between pension fund managers,” a government official aware of the matter said on condition of anonymity.
Central government employees who have joined after 2004 are automatically enrolled in NPS.According to data from the NPS trust, the Centre’s NPS plan has delivered a compound annual growth rate (CAGR) of 9.33% in the past 10 years. However, considering that equity allocations for this scheme is capped at 15%, employees who are ready to take higher risk may have been losing out on the returns from a higher share of equity investment.
“This is a big opportunity for private sector pension fund managers. With time, state governments will also give the choice to their employees as the UP and Bihar governments have done, opening up that market to us also. Private pension fund managers’ performance has also been very good; so, there is every reason for government employees to explore switching to them,” the CEO of a private sector pension fund said on condition of anonymity.
“The average pension pot of a central government employee is ₹7-8 lakh. However, reaching out to this market is a challenge,” he added.
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