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Dynamics Of Retirement Services Industry in India

I really like the fact that occupational pension is compulsory in India (for companies with more than 20 employees). The employees do not have a choice of where and how their money is invested, but the returns are assured. Now, why I am a fan of this model:

A vast majority of people do not save for retirement on their own
It is very difficult to predict the future value of money, and hence appraise the size of the retirement bucket
People are not financially literate, and do not understand investment vehicles, (More on this in my next blog) that will help them achieve their goals

However, only about 15% of our populace has access to the provident fund scheme. The large unorganized sector and labor force is not covered. This becomes more important in countries with a decreasing dependency ratio such as ours (this means that an increasing % of our population is entering the working age)

Dependency Ratio = Number of dependent people
—————————————- * 100
Working population country

Schemes like NPS (New Pension Scheme) are trying to address this gap. We need attractive pension programs, offering an incentive to save, like the Swavalamban Yojana for example: where the government contributes Rs.1000 every year to the members accounts. These are steps in the right direction but solution lies not in the launch of the schemes alone, but in

– Literacy (financial and otherwise)

– Distribution/ availability of the schemes

(With a caveat that for people to save, they need to be employed)

Having said that, we definitely do not need schemes like the NREGRA that encourage people to do no work, not to mention the corruption. The biggest hurdles we face in establishing an integrated pension scheme is unemployment, our huge population, and huger corruption.

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