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National Pension System emerging as better retirement option

National Pension System emerging as better retirement option

SB Mathur, who recently demitted office as Secretary General, Life Insurance Council, says the National Pension System is emerging as a better retirement option.

SB Mathur
While serious efforts are on to get NPS moving, insurance pension plans have gone out of the market. SB Mathur, who recently demitted office as Secretary General, Life Insurance Council, says the National Pension System (NPS) is emerging as a better retirement option.

Q. Why have insurance pension plans vanished from the market?
A. This was because of the minimum guarantee clause stipulated by Irda. Initially, the regulator suggested a 4.5% guarantee. Companies said they would have to invest only in fixed-income instruments to do this. This hit the pension business. In 2008-09, the pension business was Rs 30,000 crore. Last year, it was just Rs 13,000 crore.

Q. Is NPS emerging as a better option?
A. Inflation being high, your long-term savings can be protected only by investing in equities. Now, Irda has said that instead of 4.5% (on insurance pension plans), the guarantee should be non-zero, which means you can give only capital guarantee.

This is not fair, because if a person takes a 20-year plan, investments are made accordingly. If the person goes away after five-six years, how can you treat it on a par with someone who have stayed the entire duration. So, inherently this is flawed, since to facilitate people to exit early, other long-term players have to suffer.

Compare it with the NPS, run by the government, where most of the investors are investing their primary retirement savings. So, even a person earning Rs 20,000-25,000 a month has the option to invest in equity.

In the growth option under NPS, 40-50% money goes into equity. But in an insurance pension plan, a person from a higher income group for whom this is not his primary but voluntary savings, he or she cannot opt for investing in equity.

Q. Are you demanding equity options similar to that of NPS?
A. That is right. If I am able to pay Rs 40,000-50,000 as premium, I should be able to invest in equity since I am willing to take that risk. It should be one of the options. Under insurance pension plans, I don't have the capacity to take risk even if, say, I am in the Rs 50 lakh bracket.