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Fixed-income investment instruments like fixed deposits (FDs)/recurring deposits, gold, Post Office Savings Schemes and insurance still dominant retirement plans amid a growing interest towards mutual funds, found a survey. Interest in equity stocks and ETF investment has declined.
The PGIM India Mutual Fund Retirement Readiness Survey 2023, released on Monday, also revealed that post-pandemic, events like inflation, economic slowdown, and the stability of jobs and income have prompted more Indians to plan their retirement.
“67 per cent of Indians say they are ready for retirement, which has emotional benefits overall, leaving them having a positive outlook about work and life. Those who planned for their retirement generally started it around 33 years of age and those who haven’t, intend to start in their 50s,” said the survey report.
“Overall, the rise of retirement planning among Indians is a positive trend that reflects a growing awareness of the importance of financial planning for long-term financial security,” said Sagneet Kaur, SVP, Behavior Finance & Consumer Insights, PGIM India Mutual Fund.
Indians believe they are ready for retirement
PGIM India Mutual Fund survey 2023 among 3009 Indian adults aged between 26-60 years covering salaried, businessman/self-employed professionals, found that post-pandemic, a significant jump was witnessed in the percentage of Indians reporting to have a retirement plan— from 49 per cent in 2020 to 67 per cent in the current run.
PGIM
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Post-pandemic, the percentage of respondents without a retirement plan decreased from 51 per cent in 2020 to 33 per cent in 2023. Among the 33 per cent, 40 per cent believe they don't need a financial plan for their goals, while the rest plan to start at age 50.
This group is consistent with the 2020 survey. Interestingly, 40 per cent of those who don't think they need a plan are in tier 1 cities, earning Rs 50,000-75,000, mostly self-employed, aged 51-60, with no alternate income—down from 55 per cent in 2020.
Investors prefer investing in FDs
According to the survey, Indian investors favour fixed/recurring deposits, annuities/insurance, gold, and the Post Office Savings Scheme (POSS). Mutual fund investments are rising (23 per cent in 2023, up from 10 per cent in 2020), while equity stocks/shares and ETFs have declined (7 per cent in 2023, down from 18 per cent in 2020).
PGIM
Notably, Indians are increasingly aware of retirement schemes like the National Pension Scheme (NPS), constituting 15 per cent compared to 5 per cent in 2020, and the Public Provident Fund (PPF) is preferred by 13 per cent, up from 3 per cent in 2020.
PGIM
Those with a retirement plan are more open to mutual funds (24 per cent) compared to those without (21 per cent). Conversely, those without a plan prefer gold (53 per cent) and POSS (38 per cent) a bit more than those with a plan (49 per cent in gold and 36 per cent in POSS).
Secondary income
Worrying about lack of an alternate source of income, related to managing finances post-pandemic showed a significant jump from 8 per cent in 2020 to 38 per cent in 2023.
According to the survey, 36 per cent of the respondents reported having a secondary income source with 39 per cent more planning to get the same in the near future.
Notably, Indians are increasingly generating secondary income from unique skills (44 per cent) and financial investments (42 per cent), the report noted
Many still not aware of the required retirement corpus
Sixty one per cent of respondents to the survey said that they are aware of the retirement corpus they need once they stop working. However, 39 per cent said they were not aware of it.
With the increase in the number of Indians planning for retirement, the corpus amount that they believe is required when they retire has also increased from 8-9 times their annual income in 2020 to 10-12 times their income in 2023.
In 2023, retirement concerns have shifted, with a doubling of attention towards inflation, economic slowdown, and the lack of alternate income sources. In the survey, 56 per cent identified inflation as the top worry, followed by health concerns (52 per cent), economic slowdown (50 per cent), and the cost of living (50 per cent).
PGIM
Notably, the lack of family support in the future (50 per cent) is a significant concern, emphasising the importance of retirement planning. The percentages for inflation, economic slowdown, and critical/terminal illness have doubled, reflecting recent macro-economic challenges. Interestingly, worries about organisational support and continuing to support children have taken a backseat.
Other key findings of the survey
Income allocation trends: Indians are allocating 59 per cent of their income to household expenses and 18 per cent to paying off loans, reflecting a slight increase from the 2020 survey. Additionally, 5 per cent of income is now earmarked for skill development or education loans.
Shifts in financial behaviour: The pandemic has prompted changes in the attitudes, behaviours, and financial planning of 48 per cent of respondents. Indians are now more financially conscious, planned, and disciplined.
Concerns Post-Pandemic: Post-pandemic, worries about inflation and economic slowdown have doubled compared to the 2020 survey. Managing finances post-retirement is a top concern, reflecting the impact of recent macroeconomic challenges.
Financial security in a joint family: Contrary to the pre-pandemic era, staying in joint family units no longer fosters a greater sense of financial security for Indians. Only 70 per cent of respondents in 2023, compared to 89 per cent in the 2020 survey, reported feeling financially secure in joint families.
“We saw a visible attitudinal and a behavioural shift overall, where the pandemic seems to have impacted certain significant aspects. The emphasis on self-identity, self-care and self-worth have emerged as more important than ever alongside fulfilling roles and responsibilities towards one’s family,” said Ajit Menon, CEO, of PGIM India Mutual Fund.
