A secure retirement takes lots of capital. With a younger retirement age and long life expectancy, there is a fair chance that an average retiree spends at least one-third of his life of what he spent while working. Most couples should plan for survival at least upto the age of 75. And why not if retirement is really one third of your life without a paycheck!The size of investment Most people find they need at least 70-100% of their pre-retirement income to live comfortably. They like to travel and pursue their hobbies. In fact, most individuals spend almost the same amount of money during their 60s and 70s as they did during their working years.

Besides, they are faced with some other commitments like marriages or higher education of children. Importantly, old age brings a number of ailments which take a toll on their savings. Success in the accumulation phase (when you are working) is directly related to three variables: starting early, investing enough, and attaining reasonable rates of return.

The relationship between time, amount invested, rate of return, and ultimate results are pretty well known. The path is pretty clear. Invest early, invest a lot, and invest in a diversified portfolio of equities to get reasonable long-term performance. While bonds and other savings alternatives may sound a safer bet, they do not offer enough real total return to meet economic needs later. While it may sound simple, the key to successful retirement planning is discipline, which should be given a high priority early in one's career. Indian pension fund industry is currently at a nascent stage with only three AMCs offering pension plans_ UTI, Kothari Pioneer and LIC Mutual Fund. Besides saving for their future, investors in these pension funds by putting upto a maximum of Rs 60,000 every year, get a tax rebate of 20 per cent under Section 88. In other words, you can bring down your tax-liability by Rs 12,000 every year.

Investment universe
When it comes to investment strategy, there is a conflict between the aim and investment universe of pension funds. Equity instruments with their long-term return potential are best suited for a pension portfolio. However, regulations allow these funds to take only a limited exposure to equities, which is capped at 40 per cent. The balance is invested in debt and money market instruments. With investment constraints, this is one reason most fund houses are shying away from launching pension funds.

Safety and liquidity
With a 40:60 allocation to equities and debt, respectively, pension funds imbibe the character of a conservative balanced fund. Hence, they are less volatile and safer than equity or plain vanilla balanced funds. Though liquidity is secondary in a pension fund, it might be important in unforeseen circumstances.

UTI offers premature encashment under special circumstances. However, UTI deducts a 10 per cent administrative charge from the repurchase amount calculated on NAV-based price. Kothari Pioneer also allows for pre-mature repurchase at a charge of 3 per cent. However, the investor has to stay put in the fund for a minimum period of three years.

UTI's RBUP
Opened in 1994, the minimum investment is Rs 10,000. This amount may be invested either in lumpsum or in instalments upto the age of 52 years. The fund distributes monthly income when the investor attains the age of 58 years. Repurchase in the scheme is allowed after 70 years.

Kothari Pioneer Pension Plan
Investor has to put a minimum of Rs 10,000 in lumpsum, or in instalments of at least Rs 500 till they attain the age of 58 years. Further, the investor has the option of income or growth scheme under the fund. After 58, the investor has three choices: regular income while leaving the corpus intact, partial withdrawal and still receive income or full withdrawal. The growth plan offers complete withdrawal at 58 years.

LIC Jeevan Suraksha
One can contribute Rs 150, and draw a pension after the age of 55 years or a life-long monthly pension with an option to commute 25 per cent of the corpus. Besides, there is a family pension which gives 50 to 85 per cent of the target annuity as family pension. Death benefits proceed to the spouse or to the nominee.

What ails Indian funds?
Apart from a constrained investment universe where funds cannot allocate more than 40 per cent to equities, there are no significant tax breaks for investors (except Section 88). Instead of dedicated pension funds, the entire family of debt, equity and balanced funds should be allowed to offer investments under pension option with attractive tax breaks. This will give investors a variety of options for a prudent asset allocation. Thus, if you are starting at the age of 26, you can allocate a higher proportion to equity funds. As you approach retirement, you can gradually shift your investments to debt funds or MIPs to safeguard your assets.

While pension funds carry a lock-in, it does not enforce long-term discipline. Although funds have a penalty for pre-mature withdrawal, it is not severe. It is required that pension funds carry a lock-in for a longer duration with a harsher penalty if an investor still makes pre-mature withdrawals. At the same time, investors should have the option of shifting their investments from one fund (with pension-related tax breaks) to another fund, if he is not satisfied with the performance. Thus, the investor has the flexibility to change funds or asset allocation even as the lock-in continues to be in place. So, if you don't want your retirement to hang like a Damocles' Sword, act smart. Adopt a comprehensive investment strategy and start in right earnest.

-- (Value Research)