In the last few years, many more Indians have started investing in mutual funds, and campaigns like 'mutual funds sahi hain' have clicked. Off late, buying stocks has also been on the upswing, thanks to emergence of new tech-driven equity investing platforms. But, are Indians planning enough for retirement? Not quite.
More than half of urban Indians have made no retirement plan at all; it is seen as important, but a distant prospect, finds a survey by PGIM India Mutual Fund. The fund house is a wholly-owned business of PGIM, the global investment management business of the US-based Prudential Financial Inc. The survey conducted across 15 cities found that urban Indians are, in fact, saving and investing less, while allocating almost 59 per cent of their income to current expenses.
In a country like India, where private sector doesn’t provide a pension and there is also no government social security programme, retirement planning will become of utmost importance. Yet, 51 per cent of the respondents in the survey had not made any financial plans for their retirement.
Children and spousal security and even fitness and lifestyle rank higher than retirement planning, the survey revealed.
As many as 48 per cent of those surveyed said they are not aware of amount required for life after retirement. Worryingly, of these respondents unsure of their required retirement corpus, 69 per cent ended making no plan at all, the survey pointed.
“The only financial goal for which you do not get a loan for in today’s world is retirement. You can get a loan for everything else from higher education, house, car, starting a business, etc. This puts the onus for being prepared squarely on each of us... Given the current economic challenges emerging in the wake of the global pandemic, the need for future financial security or financial freedom is even more pertinent today,” points Ajit Menon, CEO, PGIM India Mutual Fund.
Those, who do plan for retirement, the average respondent assembles a corpus of around Rs 50 lakh, or about 8.8 times the average annual income. Even those who plan, often make ill-advised plans without assessing their own requirements, and fail to make adequate provision for contingencies like inflation.
Also, 41 per cent of respondents said they had focused their retirement investments on life insurance, while 37 per cent preferred fixed deposits.
Among other popular retirement investments, health insurance was favoured by 15 per cent of respondents, 15 per cent had gold, recurring deposits (14 per cent), post office (14 per cent), National Saving Certificate (NSC) (9 per cent) and property (9 per cent).
Rising prosperity and improving healthcare have greatly increased the average life-span over the last few decades. But, cost of living is also rising and traditional joint family structures are also breaking up. In this backdrop, perhaps, there is now a need to change the conversation towards retirement planning. Importantly, the stigma around retirement should be removed by changing the narrative from the negative thoughts of becoming obsolete to the positive thought of a happy and secured retirement life, the survey suggests.
There is also a clear opportunity for the financial services industry to create and introduce new and innovative products, says Menon.
The COVID-19 pandemic has had a huge impact on lives; people lost jobs, salaries were cut and suddenly the spotlight was firmly on huge healthcare costs. According to Menon, the pandemic may bring deeper changes in people’s habits, but whether they are long lasting, is something that will have to be watched out for.
“Early studies indicate a reduction in spending and preference for cash and savings, but we will have to see if these behaviours sustain over a period of time, post the pandemic emergency. We will also have to see if consumers will be more oriented towards channelising funds to secure their future. In addition to the government, the financial advisory community will have to play a strong role in building awareness and guiding behaviour in this context,” he said.