India's Pension Narrative: PERDA is mulling to roll out assured return scheme

The Pension Fund Regulatory and Development Authority (PFRDA) is mulling the rollout of an innovative scheme, stated Supratim Bandyopadhyay, Chairman, adding that the concept of assured return will appeal uniquely to many retirement-minded individuals.

The finer points of the proposal will be revealed soon, he mentioned. 

Assured return, it is admitted in retirement planning circles, is often seen as a major draw for investors. A remnant of the traditional Defined Benefit (DB) mechanism, as opposed to the market-oriented Defined Contribution (DC), the concept of assured return is likely to find support from an influential section of the market. 

The conservative parts of the market, especially those in the middle classes, are frequently in favour of fixed-return instruments. In fact, the nation’s savings pattern is still overwhelmingly tilted towards guaranteed performance (read: deposits).

The trend has historically left little scope for market-oriented returns. The proposed scheme will help many new investors test the organised market for retirement products. The latter – dominated principally by insurance companies, with asset management companies bringing up the rear – is expected to draw a larger following in the days to come.

The organised sector is already said to be moving ahead at a fast clip. At one level, it is being spearheaded by the New Pension System (NPS). The overall point has already drawn the market’s attention. “Retirement awareness is firmly on the rise, Indians are more conscious about securing their future financially than earlier,” the PFRDA chairman noted with reference to a few contemporary trends. 

“What will be the prime drivers for growth in the pension market?”, I asked. The answer, actually a medley of reasons, is evident from a number of statistical pointers. These may be seen in conjunction with other changes that are quite likely too.

For instance, metrics such as life expectancy and dependency ratio are expected to morph. Additionally, higher longevity risk (which relates to the probability of running out of savings before death) will be a significant factor for future generations. It may be mentioned in this context that there is already a pronounced inclination to begin investing early.

A large number of new-generation investors commence early these days; more individuals are also inclined to formulate regular investment strategies for longer periods. 

This is quite evident in the surging number of SIPs (Systematic Investment Plans) of mutual funds. The trend may one day be replicated in the pensions market too, it is hoped. However, a long journey has just started, Mr Bandyopadhyay felt. “While old-age pension remains a crying need, people still tend to warm up to the idea of retirement much later in life. An ordinary individual becomes serious about it when he has advanced in terms of age, say, in his 40s or even 50s,” the PFRDA chairman stated. 

“The noteworthy trend is that preferences are changing these days more than ever. People must begin when they are younger and stay focused on their retirement goals for long.” 

(Nilanjan Dey is Director, Wishlist Capital and author of No Room For Less. He can be reached on nildey@yahoo.com)