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Pension Funds: The Next Boom Business

By: Dev Chatterjee, The Indian Express

 March 23, 2003

The Indian pension fund market is set for some big changes in the coming months with the government planning a full-fledged regulator for the industry. With life expectancy going up and zero social security net for a large number of Indians, the industry is set for a boom.

The pension market in India is virtually untapped compared to other developed markets of the world. In the USA, pension accounts for about 49 per cent of the insurance policies sold each year while in India less than one per cent of the market has been covered with pension items. Pension funds in India are twice the size of mutual funds and if allowed the freedom to productively invest they can even make a significant contribution to the development of Indian capital markets, say analysts.

Says Shikha Sharma, Managing Director of ICICI Prudential: “We recognised pension as a huge opportunity early on and invested the necessary resources in the category. There’s been a significant increase in consumer awareness about retirement planning—it’s emerging as a product that people seek— and this has driven our growth in the category.”

Of the 12 private sector life insurance companies, almost all are planning pension products to cash in on the boom time. “In the private sector pension market, ICICI Pru holds 73 per cent share as of end-January, despite the entry of many new entrants during the year. This translates into a 24 per cent share of the overall pensions market amongst life insurers (private players account for about 32 per cent of the entire pensions market),” says Sharma.

With the setting up of the pension regulatory body by next month, life insurance companies—offering pension funds—will have to report their accounts of pension funds to both IRDA and the new regulator so that your pension funds do not disappear like US-64 or IDBI Bonds. In this scenario, what are the options for a small investor?

Analysts say if you have not bought a pension policy as yet then it’s time to have one! Usually, experts say, a person should start contributing to a pension fund as soon as he starts earning. Though almost all salaried class are making mandatory contributions to the Employee Provident Fund (EPF), the total fund accumulated in the corpus usually is not enough to sustain the same lifestyle after the retirement.

On the other hand, government employees do have a pension but it’s not enough to pay for post-retirement expenses like health care which is one of the biggest expenditures in the retired life. “Whether it’s a government employee or a private sector employee it makes sense to enroll into a pension fund as soon as a person starts earning at 22,” says a Metlife Insurance official.

“With this, he has to save less per month as compared to a person who starts saving for retirement in his advance age,” she said.

As almost all life insurance companies are planning to come out with pension schemes and even companies like Principal are planning a standalone dedicated pension fund, it’s better to wait till all the products are on the table so that an investor/saver can compare and pick up the best scheme suited for the retirement.

Remember savings today will go a long way in mitigating your post-retirement blues. Don’t wait for tomorrow. 

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