Depending on children for post-retirement money needs may not be the good idea in today’s time

According to the RBI Committee of Household Finance Report of 2017, only 23 per cent of Indians have planned or plan to start saving for retirement. During one's younger years, most individuals are in spending mode and don't focus on saving. The general notion is to depend on children for a comfortable retired life, which may not be the best option in current times. Sumit Mohindra, CEO, ICICI Pension Funds Management Company, in an exclusive interview with Bizz Buzz, says, “Rising inflation and healthcare costs, higher life expectancy, increasing trend of nuclear families, and children migrating to pursue their careers necessitate planning for retirement well in advance”

What is the current retirement and pension scenario in the country?

According to the RBI Committee of Household Finance Report of 2017, only 23 per cent of Indians have planned or plan to start saving for retirement. Better financial literacy, increased access to financial advisors, and normalised discussions on money matters could improve retirement planning. The case for pension funds is more expansive than just planning for retirement. Long-term pension funds bring a lot of stability to financial markets, and India needs long-term capital to build physical and social infrastructure. As per Marketresearch.com, in 2018, the fund size of retirement savings comprising of the National Pension System (NPS), Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) together was about Rs 25,07,800 crore, which is expected to reach Rs 62,35,300 crore, by 2025.

NPS is steadily gaining popularity as it provides an excellent platform for individuals to secure their future by creating an adequate retirement savings pool through regular disciplined contributions. In the past five years, the NPS subscriber base has multiplied over threefold and Assets under Management (AUM) has grown over fourfold, with annual rates of return ranging between 9–13.3 per cent.

How important is it to plan for a financially independent retired life?

As per ICICI Prudential Life Insurance’s study titled “Is India prepared for retirement?” for a large number of individuals, continuing with the current lifestyle into their retirement is the topmost priority, followed by enjoying life, staying connected with friends, travelling abroad, feeling financially secure, and having peace of mind in this new chapter of their lives. Therefore, it is crucial to start planning for retirement at the earliest. Ideally, retirement planning should be about preparing for 15-20 years down the line. However, during one's younger years, most individuals are in spending mode and don't focus on saving. The general notion is to depend on children for a comfortable retired life, which may not be the best option in current times.

Rising inflation and healthcare costs, higher life expectancy, increasing trend of nuclear families, and children migrating to pursue their careers necessitate planning for retirement well in advance. Also, the pandemic has proved that any savings or investments could get wiped out if one has not planned. It has been a wake-up call for individuals to prepare for their retirement as this is the time when regular income ceases to come in. It has nudged individuals to seek out financial savings products which are best suited to the current market environment.

Why is it important to choose NPS over other products for retirement planning?

NPS is a unique and simple proposition that helps individuals plan for their retirement through a systematic savings approach. It is the country's lowest-cost retirement planning product, which enables customers to systematically build their retirement corpus over the long-term and lead a financially independent retired life, besides offering tax benefits. NPS subscribers have the flexibility to choose their asset allocation between equity, government bonds, corporate bonds and alternate assets. Individuals can invest up to 75 per cent in equity, thereby providing the potential to deliver inflation-beating returns in the long run.

It also provides flexibility in choosing/changing the asset allocation and the fund manager, which is one of the most unique features of NPS. Additionally, NPS subscribers get exclusive tax benefits in the form of a deduction for investments up to Rs 50,000 under section 80CCD (1B). Subscribers working in the corporate sector can additionally claim up to 10 per cent of their basic salary plus dearness allowance as a deduction from taxable income under section 80 CCD(1). The portability across jobs and flexibility to withdraw up to 60 per cent as a lumpsum on retirement provides peace of mind to subscribers. The mandatory annuitisation of at least 40 per cent of the corpus ensures the money is utilised to receive regular income in the golden years.

How has pension and retirement awareness in India evolved over the last 10 years?

Awareness around the need for retirement planning has been gaining traction. There has been a three-fold increase in the NPS subscriber base. It grew from 1.5 crore in March 2017 to over 5.2 crore in March 2022. Moreover, NPS receives more than 5 lakh subscriptions each month.

What are the initiatives needed to increase the subscriber base?

The government and the private sector will need to work hand-in-hand to ensure that the message on the importance of retirement planning is taken to as many Indians as possible with propositions for all segments of society. India is a country with a large young population. Simplified and digital onboarding processes will help reach out to a wider audience. For instance, ICICI Prudential Pension Funds entered into a first-of-its-kind distribution partnership with PensionBox, India’s first pension app, to offer NPS to its customers.

What are the opportunities that ICICI Prudential Pension Funds Management is looking at?

According to the Longitudinal Ageing Study in India, currently, 12 per cent of Indians are above the age of 60, as compared to 8.6 per cent in 2011. As per a market study by 2050 the number of people in the 60 plus age bracket will outnumber those below the age of 15. According to Dragonfly Market Research, the growth rate of senior citizens is pegged at 171 per cent compared to the total population growth rate of 27 per cent. This, coupled with the fact that the average life expectancy is also set to be 75, indicates the untapped potential.

We are working to reach out to as many Indians as possible and encouraging them to plan for their retirement by empowering them. We are investing in providing digital platforms to potential subscribers. With our digital platform, we aim to provide all the required information for an individual's retirement planning and help in onboarding through an intuitive and simple online journey.

We are also developing the necessary digital and technology infrastructure to provide best-in-class service to our subscribers. We are partnering with fintechs such as PensionBox, which will help us expand distribution in Tier-2 and 3 cities. Subsequent to our efforts, ICICI Prudential Pension Funds' pension fund AUM has grown by 53.6 per cent in FY22 over FY21, and the 3-year CAGR was above 50 per cent.

How would you assess the overall performance of your company? What is the growth that you are seeing in assets under management for the current financial year and for the next?

At an industry level, the AUM of NPS has grown fourfold from Rs 1,75,303 crore in FY 2016-2017 to Rs 8,39,458 crore as of January 2023. With a relatively young subscriber base and likely addition of 1 crore new subscribers, including 90 lakh from the government–backed APY, the PFRDA is expecting over 22 per cent growth in fresh fund inflows, i.e. about Rs 2 lakh crore in FY2024.

At ICICI Prudential Pension Funds, we are witnessing robust growth in our subscriber base. We currently have more than 5.5 lakh subscribers, which has been growing at more than 30 per cent CAGR over the last 3 years. Our AUM too has been growing at a CAGR of over 50 per cent for the last three years. Going forward, we believe we are just about scratching the surface and expect the industry to grow exponentially in the years to come. We want to be prepared by having in place the right people, processes and technology and play a constructive role in the growth of the retirement space.