Products with post-retirement returns to subscribers needed

Deferred annuity and other post-retirement products that ensure optimal returns to subscribers should be developed, said the Financial Stability Report (FSR) released by the Reserve Bank of India on Wednesday.

According to the FSR report, more steps are needed to boost the annuity market to deepen and widen the pension market. “Though annuitisation enables a subscriber to have a regular stream of income in his old age, this may not be providing the optimal outcomes in terms of returns,” the FSR report noted.

The report also explained there is a need to align the investment framework for government employees.

“The choice of pension funds and investment patterns should rest with an individual employee. There is a need for shifting the risk from the employer to the employee, wherein the onus of ‘funding’ old age income security moves from the employer to the individual employee, through his/her individual retirement accounts,” it said.

Currently, at the time of investing, a minimum 40 per cent of the pension wealth of a subscriber has to be annuitised and up to 60 per cent of the pension wealth may be withdrawn as lump-sum. At the time of normal exit from National Pension System, subscribers can use the accumulated pension wealth under the scheme to purchase a life annuity from a Pension Fund Regulatory and Development Authority (PFRDA) empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.

The PFRDA Act states there shall be a choice of multiple pension funds and multiple pension schemes for subscribers.

With respect to insurance, the report said the role of the insurance function in the financial crisis has had a stabilising influence on the capital market as a whole, especially in the Indian context.

It added they might not have the compulsion to sell in a falling market and, instead, can be contrarians with the falling capital market providing an opportunity to go ‘long’.

With respect to foreign reinsurers having branch presence in India as allowed by Insurance Laws (Amendment) Act 2015, the report said these insurers might have exposure to non-traditional and non-insurance products which may entail systemic risks.

However, it said the recent regulations from the Insurance Regulatory and Development Authority of India are aimed at providing adequate safeguards to mitigate possible systemic risks.