Mumbai: After the trust vote, there has been a lot of attention on the perceived efforts of the government to push critical economic legislation. One of these relates to pensions. There are many players in the financial sector who are hoping to see the legislation being enacted, even if for selfish reasons. A growing number of Indians, especially in the urban areas and bigger towns, thanks to their higher income, are putting their money in mutual funds and other products which have an exposure to equity. Asset management firms, both local and foreign, have no doubt about the market potential here.
Now, a report on the private pension market in India, titled The Sleeping Giant, has thrown up some interesting data. Based on the Invest India Data-works Income and Saving Survey 2007, IIMS Data-works research report says that there are over 8 crore people who do see the need for and value of a pension plan even if it is a contributory system. Current estimates are that about 2 crore people save for their retirement by buying life insurance and other products.
The report suggests is that if the latent demand of this segment of the population is harnessed or tapped, the New Pension System could well have a corpus of Rs 57,000 crore in the first full year of operations. Sounds great but the reality might be different. But, as the report says, even if 20% of the 8 crore people, which it reckons are prime prospects, start saving for their retirement, the money which pension providers could have access to will be substantial.
Indeed, it has been demonstrated in some states how some organisations and self-help groups have managed to convert a growing number of daily wage earners to set aside modest sums for old age security.
The IIMS report says that as part of its survey, it sought out information from respondents on their retirement intentions and expectations, besides savings objectives. The survey showed that less than one in 14 people is making a conscious effort to save for retirement. Much of it has to do with low earning capacity. However, with robust economic growth, average earnings have risen and taking into account the change in demographics, the pool of funds which could be available for pension savings will be large.
If the survey is a guide to go by, policy makers will be able to draw comfort from the findings. The majority of those covered under the survey have said that they are willing to accept the fact that they have to save for a decade or more, even if it means small sums every month. Nor are they balking at the thought of not being able to take out money before the age of 58. The survey in fact, estimates that of the 8 crore workers in the paid workforce, one in four workers is ready to save for retirement and sign on for a voluntary pension plan. That should certainly bring some cheer to the pension regulator, PFRDA.
There is a lot of ground that the report covers. For instance, state-wise distribution of latent demand for retirement savings schemes. Demand is pronounced in states such as Andhra Pradesh, Maharashtra and Uttar Pradesh where it believes a targeted approach could well work. The resistance to investing in securities is also low compared to other assets, the report says. The other positives which have emerged from the survey is the fact that 70% of those falling in the latent demand category for retirement products do have a banking account or save with the post office.
Of critical importance now would be the approach of policy makers towards this universe of investors. Obviously, product design would be a key determinant. So would be the regulatory structure, the ease of investment, type of products and distribution channels, among others. The PFRDA is putting in place structures which seek to address all these. It is also clear that those aspiring to tap the potential investible surplus would need to unveil effective campaigns to woo savers. And that is not marketing campaigns alone but financial literacy programmes. The pensions regulator for one is considering doing that. Others who have a long term stake in the market need to follow suit.
Now, a report on the private pension market in India, titled The Sleeping Giant, has thrown up some interesting data. Based on the Invest India Data-works Income and Saving Survey 2007, IIMS Data-works research report says that there are over 8 crore people who do see the need for and value of a pension plan even if it is a contributory system. Current estimates are that about 2 crore people save for their retirement by buying life insurance and other products.
The report suggests is that if the latent demand of this segment of the population is harnessed or tapped, the New Pension System could well have a corpus of Rs 57,000 crore in the first full year of operations. Sounds great but the reality might be different. But, as the report says, even if 20% of the 8 crore people, which it reckons are prime prospects, start saving for their retirement, the money which pension providers could have access to will be substantial.
Indeed, it has been demonstrated in some states how some organisations and self-help groups have managed to convert a growing number of daily wage earners to set aside modest sums for old age security.
The IIMS report says that as part of its survey, it sought out information from respondents on their retirement intentions and expectations, besides savings objectives. The survey showed that less than one in 14 people is making a conscious effort to save for retirement. Much of it has to do with low earning capacity. However, with robust economic growth, average earnings have risen and taking into account the change in demographics, the pool of funds which could be available for pension savings will be large.
If the survey is a guide to go by, policy makers will be able to draw comfort from the findings. The majority of those covered under the survey have said that they are willing to accept the fact that they have to save for a decade or more, even if it means small sums every month. Nor are they balking at the thought of not being able to take out money before the age of 58. The survey in fact, estimates that of the 8 crore workers in the paid workforce, one in four workers is ready to save for retirement and sign on for a voluntary pension plan. That should certainly bring some cheer to the pension regulator, PFRDA.
There is a lot of ground that the report covers. For instance, state-wise distribution of latent demand for retirement savings schemes. Demand is pronounced in states such as Andhra Pradesh, Maharashtra and Uttar Pradesh where it believes a targeted approach could well work. The resistance to investing in securities is also low compared to other assets, the report says. The other positives which have emerged from the survey is the fact that 70% of those falling in the latent demand category for retirement products do have a banking account or save with the post office.
Of critical importance now would be the approach of policy makers towards this universe of investors. Obviously, product design would be a key determinant. So would be the regulatory structure, the ease of investment, type of products and distribution channels, among others. The PFRDA is putting in place structures which seek to address all these. It is also clear that those aspiring to tap the potential investible surplus would need to unveil effective campaigns to woo savers. And that is not marketing campaigns alone but financial literacy programmes. The pensions regulator for one is considering doing that. Others who have a long term stake in the market need to follow suit.
Source: The Economic Times
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