By Prashant Tripathy
One of the reasons for poor penetration of pension funds in India is subdued interest in retirement planning. As the country is on the verge of a demographic shift, a vast majority of the population is still not covered by pension plans that provide an income sufficient to carry them through their retirement age.
While government-led pension products like the National Pension System (NPS) have benefitted individuals planning to retire (including gig workers and small business owners), public-private partnership will be key to achieving full potential of government pension and retirement programmes. Such an alliance can assist in bridging the retirement gap by establishing a supportive and sustainable pension system, one that can financially secure today’s ageing population.
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There is a pressing need to incentivise today’s pre-retirees to invest towards a financially secure future. Against this backdrop, India stands to gain from a vibrant pension market where even life insurers are poised to offer holistic solutions for retirement planning.
Bridging the retirement gap
Life insurance companies offer pension plans or retirement plans that help people save regularly and invest smartly so that they are prepared for contingencies while fulfilling their post-retirement aspirations. Modelled as sophisticated retirement solutions designed to provide a guaranteed income after retirement, these plans can convert income into a nest egg earmarked for post-retirement life. They come in various forms to cater to various investment, tax-saving and protection goals, enabling a financially protected retired life. Investment themes in such plans are categorised on the basis of risk appetite – ranging from aggressive to balance to conservative.
There’s also the option of switching between funds as one’s investment preference or risk appetite changes. This flexibility is important because pension schemes are long-term investments and personal, financial, and economic circumstances may change over time.
Another advantage is that of holistic products that offer combined benefits, where along with investment as an added benefit, the core benefit of insurance remains. This will keep the family and dependents’ financial needs safe, in case of the demise of the life insured. These variants also offer annuity – a contract between an individual and life insurer aiming at generating a regular income for life after retirement. Such retirement plans and pension plans provide subscribers with an opportunity to leave behind a legacy sum for their dependents.
Also Read: NATIONAL PENSION SYSTEM: Ways to set your asset allocation
The differentiated benefit lies in the dual advantage of life insurer backed investment plans that come with an added layer of flexibility. Additionally, these are passive investment plans, allowing one to save with discipline without having to actively manage a large sum.
Building a financially protected future
From an individual’s perspective, the economics of investing in retirement are simple – start early and choose wisely. From an economic perspective though, a solid regulatory framework will be required as the pension sector develops to ensure that funds are managed prudently while maintaining overall financial stability of both the nation and its citizens.
The writer is MD & CEO, Max Life Insurance