#pensionsystem

The concept of a pension and its system remains a borrowed first-world one in India even today. Unfortunately, like most borrowed concepts, it still is a half-baked recipe.

A pension aims to provide a dignified life post-retirement to elderly people. It reduces the dependency of senior citizens on their children —their so-called only support of old age.

In the initial phase, only government employees were entitled to receive a pension. Later, various central governments in India tried their hand at running comprehensive pension programmes.

However, there weren’t any major breakthrough.

Why?

Because, like most political agendas, their pension proposals looked brilliant only on paper.

Today, Life Insurance Corporation of India (LIC) is the most active player in the ‘pension market’.

And yes, ‘pension’ is a market.

Read this piece patiently for the next few minutes and you will completely agree with this statement.

The current government launched the Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme to “provide social security during old age and to protect elderly persons aged 60 and above against a future fall in their interest income due to uncertain market conditions.”

The schemes promised to pay 8% returns p.a. for 10 years. The minimum subscription amount was fixed at Rs 1.5 lakh and the upper limit was Rs 7.5 lakh of the scheme. Click here to read the press release.

Recently, the government decided to double the ceiling of the maximum purchase price of the PMVVY.

Now you can invest upto Rs 15 lakh and earn a pension of upto Rs 10,000 per month.

Further, the government has extended the subscription period by two years. Now the scheme will be open for subscription until March 31, 2020.

While government believes it’s doing its best to set up a full-fledged pensioned society in India, critics feel the returns offered by the scheme are low and inadequate to take care of post-retirement expenses, given its proportionate relationship with inflation.

These are extreme positions.

On the one hand, we are making government accountable for containing fiscal deficit, and rightly so. But on the other side, why are we annoyed about the returns it’s offering?

Such double standards are obviously an impediment to the implementation of a decent pension system.

Similarly, on the one hand, the government claims to be concerned about senior citizens. Then, why is it acting as an opportunist trader?

The first pertinent question: What’s the logic behind having a pension scheme for a 10-year period?

So, if somebody purchases an annuity at 60; does the government assume demise at 70? If not, then ditching that person at age 70 years is worse than not offering any security at when they qualify as senior citizens.

And the timing of the extension of PMVVY is brilliant, just like its launch. Inflation is slowly inching up, and there is likely a strong case for interest rates offered by banks creeping up. Unless you don’t make pension tax-free or offer some additional incentives, how different is PMVVY compared to any other bank deposit?

In other words, the government is trying to protect its skin by luring investors to lock their money for long-term at low rates, at a time when interest rates may rise. It’s trying to limit its liability. Does it then really care about India’s senior citizens?

Ideally, it should make PMVVY a 30-year scheme. But for that, it will really need to have the chest of 56 inches.

LIC is responsible for managing the scheme and if it fails to generate 8% returns, the government will bridge the gap—that’s the nature of the scheme. If the government of India can stick its neck out and promise to pay 8% returns for next 30 years, it will indeed create a history. It would be good enough to silence all critics who are complaining about paltry yields.

Why has India performed miserably on pension reforms so far?

Some governments in India lacked the motivation and some lacked intelligence.

Are we going down on both these counts day by day?

In the present form, the PMVVY isn’t anything more than a scheme that any government would like to use to propagate its pro-people stance before elections.

Do you still think the pension is more about security and less about business?

Let’s face it.

‘Pension market’ is no less than a jungle. You have to care for yourself, no one else will.

That’s why you should start planning for your retirement when you’re young.

The corpus that you build for your retirement depends on two broad factors:

1.The choices you make, and

2.The behavior of the financial markets.

We have no control over the behavior of the financial markets, so let's leave that one aside.

Consider this:

Can you imagine what your retirement life would be like if all the choices you made were absolutely perfect? If you didn't make a single retirement planning mistake, if every time you invested, it was according to plan, in the right asset class, in the right instrument, in the right option, and at the right time? Wouldn't life be grand?

Retirement planning isn’t as difficult as it may look.

First, try to estimate the corpus you might require at retirement using PersonalFN’s retirement calculator.

Second, depending on years left for your retirement and your risk appetite create a personalised retirement plan. You should also take into account your existing kitty of retirement savings.

Want PersonalFN to help you accomplish your goal of blissful retirement?

Yes?

Do not hesitate to call us on 022-61361200.

You can also Schedule a Call with our investment consultant, or even drop a mail at [email protected]  or reply to fns@personalfn and we will be happy to help you.

PersonalFN is a SEBI registered investment advisor. We will handhold you on the path of wealth creation and living a blissful retired life.