-1.jpg "Tarun Chugh")
The Indian pension market is still at a nascent stage, both in market size and product range, compared with the pension markets in developed nations. The US pension assets, for instance, are 14 times India's GDP. The total retirement savings to GDP ratio in India is a low 5.6%, compared with the over 60% in developed countries. However, because of the increased awareness about the need for pension and the changing demographic profile, the growth in pension assets is more pronounced in developing nations than in developed countries.
Worldwide, insurance companies manage a significant portion of the total pension assets. In 2006, around 14% of the total pension assets in the OECD-funded pension markets were under the pension insurance contracts run by life insurance companies.
Globally, life insurance companies, offer a diverse and comprehensive suite of products required for retirement planning. These include health plans, pension plans and annuity plans. Everyone has different needs and there is no single, straitjacketed approach to developing a retirement strategy. However, retirement solutions from life insurance companies (in the form of Ulips) offer flexibility required for long-term planning and opportunity for growth. Also, insurance pension plans provide an annuity, which is a guaranteed income for life after you have retired.
The life cycle of a retirement plan can be broadly divided into two phases: pre-retirement (accumulation or income generation) phase and post-retirement (payout) phase. There are various products available in the market to cater to the risk appetite and needs of customers in both these phases. The retirement solutions are designed to match an individual's varied needs like maintaining the current lifestyle, managing healthrelated contingencies, etc.
Life insurance companies offer innovative products both for the accumulation phase (fund option with capital guarantee, return guarantee, highest NAV product and life-stage funds) and the payout phase (linked annuities, annuities which have capital guarantees tied to individual's retirement assets, etc). These options allow the individuals to participate in a rising equity market and protect them during a decline. The diversification in the product portfolio enables them to have greater control over their assets and liability duration, thus helping them manage their long-term assets efficiently.
So far, the focus in India has been on the accumulation stage, when retirement savings are built, without giving much thought to the payout phase, which appears to be far away in the future. However, retirement savings will eventually be withdrawn and consumed. The challenge is to design products for the payout phase in such a way that people don't run out of income before they die.
With the recent pension reforms, annuities will assume greater importance as they provide an opportunity to convert these savings into a guaranteed flow of retirement income for life. It is critical to understand that systematic and early retirement planning can help you reduce your financial burden during the post-retirement years and help you plan for a carefree, financially secure and holistic life today.
Tarun Chugh is Chief, Alternate Distribution, ICICI Prudential Life Insurance.
