PFRDA and Crisil raise concerns over the growing need for directing pension funds towards equity
Pension funds have long been debated as under-used assets. However, taking cue from the current market surge and diminishing channelisation of pension funds, the pension regulator, along with Crisil tabled the need for equity taking centre stage for pension funds.
A joint report by Crisil and the Pension Fund Regulatory and Development Authority (PFRDA) named, Financial Security for India’s Elderly - the imperatives, suggested greater allocation of pension funds into the equity market, raising concerns over the current market slipping towards debt.
Calling for an improvement in asset allocation by pension fund managers, the report said, “Pension system is skewed towards debt, compared with global peers, who are strongly invested in equity. The debt skew is despite the demographic advantage the country has and is expected to enjoy over a long term. The young population has a long-term investment horizon, which calls for greater allocation to a long-term asset class such as equity for wealth creation, to meet the needs in sunset years.”
The report went on to add that every fifth Indian will be 60 plus by 2050 and the country should popularise pension products, make personal finance part of education curriculum and incentivise intermediaries to increase product penetration.The National Pension System was initially opened for government employees and eventually for all. The NPS subscriber base is close to 1.6 crore at present, much below potential.
“Only 13% of household savings went into provident/pension funds in 2015-16 compared with 44% into deposits”, added the PFRDA-Crisil report. At the same, the single-most hurdle for the country is lack of penetration of pension products despite options such as pension plans from mutual funds and insurance companies being available. This affects unorganised sector the most which makes up 82.7% of the total employed population of the country.
The report highlighted declining support of traditional families. The average Indian household size has come down to 4.45 members per family in 2011 from 4.67 in 2001.
Now, should we expect incentives for redirecting pension funds into equity, only time will tell?