India with its massive workforce in the unorganised sector provides a huge untapped market as far as pensions are concerned. The pension market is expected to grow from a projected figure of $300 billion in 2010 to $800 billion by 2025 with a compounded annual growth rate (CAGR) of 9.8%.
Currently, the Indian pension market is at a nascent stage with a low coverage ratio. The schemes offered by the government are applicable to the government employees only leaving a huge window of opportunity for the private players like mutual funds and life insurers, says Northbridge Capital in its 2009 pension report.
As pension is a low margin and high volume business, high population is an appealing market. The pension market in India is mainly driven by factors such as low existing coverage, expanding aged population, life expectancy, growing awareness about old age financial independence, saving patterns and pension to informal sectors.
The confidence in private players has grown over the years. By allowing private fund managers to manage pension fund under the New Pension Scheme (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has also given boost to that confidence. The entry barrier is also low to set up an asset management company as the minimum net worth requirement is only Rs 10 crore. Also, with 100% FDI allowed through automatic routes, it is attracting the foreign players as well. So there lie huge present opportunities in this business of securing the future of people.
The pension premium in the country has grown from $1,415 million in 2006 to $6,345 million in 2008 and fell down sharply in 2009 to $3,305 million due to global meltdown. Also, the growth of the premium in pension schemes is much more than that of the total life insurance premium in 2007 and 2008. But it also went down sharply as compared to overall life insurance premium in 2009. As against overall life insurance premium of 99% in 2007, the pension premium had grown close to 200%. Similarly in 2008, the pension premium growth has again outperformed the life insurance premium growth at 52% (28%), the report pointed out.
The percentage of pension in total premium has gone up from 23% in 2006 to 40% in 2008. Similarly, the percentage of pension in number of policies has also gone up from 6% in 2006 to 20% in 2008.
The current coverage is very low as compared to the total working population. The maximum coverage is through the Employees? Provident Fund (40 million) followed by the Employees? Pension Scheme while 15 million people are covered by tax payers? money through Civil Service Pension Scheme. The newly launched NPS has not taken off yet as it has been able to gather only 0.6 million participants. The private pension plans have coverage of around 2 million.