Articles

Thanks to science and technology, the life span of individuals has increased over a period of time but this is slowly leading to another issue, solutions to which still elude the government - that of providing old age financial support to the ageing population through pensions.

Our country does have a pension system handled by the government no doubt but one that’s not very attractive and favours a limited populace - the government employees and a few private enterprises only, leaving out self employed professionals, skilled, semi skilled workers in the lurch.

Rising prices:

Consider the rising inflation, taxes and the prevailing low interest rates, the existing government pension system hardly offers good returns. This has rendered older citizens unable to have a sustained source of income to keep up a reasonable standard of living add to it the disintegration of the joint family system and the situation is even worse. Also the mindset of individuals of postponing the buying of a pension product to his old age has added to the malady.

The Asian Development Bank and the World Bank have done a study on the Indian pension industry and our government sensing the gravity of the situation, which is becoming more of a financial liability, has now permitted private insurers, mutual funds and banks to introduce pension products.

Private pension players:

To effect a major change to the existent situation the Insurance Regulatory Development Authority (IRDA) has permitted private insurers, mutual funds and banks to introduce pension products. This will see a number of players in the fray, thereby bringing about competition, professionalism in managing funds, improved products and flexibility options unlike earlier days. Pension products are divided into 3 phases beginning with the accumulation phase when deposits get accumulated for a defined period.

Pension cum Insurance:

At the end this amount is used to buy a suitable annuity that will see the individual through his sunset years. The amount collected during the accumulation phase can be invested in safe financial instruments providing good returns to investors or may be ploughed back to reap a good harvest later. Pension products can also be combined with insurance products to provide adequate risk cover, subsidized medical facilties, health cover to individuals.

The Old Age Social and Income Security (OASIS) project of the ministry of social justice had proposed suggestions for a formal pension system which are yet to be put into practise. Once pension regulations fall in place and private insurers take the long awaited plunge the economy will see a never before turnaround.