Reforms may expand pension market to Rs 4 lakh cr by ’25

NEW DELHI: Reform in the pension system may enlarge the market size to Rs 4 lakh crore by 2025 from Rs 56,000 crore in 2002, says a Ficci-KPMG paper.

According to the study, the overall economic gains would be substantial as the mobilisation of assets would lead to effective investments in the stock, bond and mortgage markets, thus supplying capital to finance corporate growth, government infrastructure and housing.

The paper noted that the need for such a reform arises from the fact that only about 10% of the country’s labour force is being covered by government-sponsored or mandated schemes at the moment and income generated through existing programmes is inadequate for many retirees.

The paper points out that the success of the pension reform would depend on the ability of the regulator to operationalise the system around the three corner stones of operational processes, product and distribution.

The paper points out that there would also be a strong need to employ trained advisors for consultative selling at the customer acquisition stage, as the level of awareness is low in India. Globally, voluntary participation is usually very low at around 5% and in the absence of employer sponsorship, increased participation can only be stimulated by active marketing, according to the study.

The paper suggests the involvement of regional co-operatives, community banks and NGOs as distribution intermediaries for bringing in the lower income groups in the pension system.

The paper states that reforms in the pension sector will inflate the capital market and it would thus require advanced management techniques for managing the extra inflow of funds.