When Dr Amit Nandy (not his real name) retired in 1981, the pension from the public-sector company where he had been employed was enough for a comfortable life for him and his wife. His children were employed, the son at a pharmaceutical company and the daughter as a doctor. Today, nearly three decades later, they are struggling to make ends meet. Too proud to take help from their children, they count every rupee they spend on food; they refuse to subscribe to cable television; and their visits to the Ramkrishna Mission (today a Rs 60 auto drive from their house in a Mumbai suburb) have dwindled.
Inflation has taken its toll on a pension that was not planned by the beneficiary which was just part of a conveyor-belt plan by Dr Nandy’s employer.
Retirement planning was a barely acknowledged concept in the 1970s;and it is still rare in India, where financial dependence on children is high. Pension plans set up by employers — especially in public sector or state-owned companies — have traditionally served to compensate for the individual’s neglect. But, as the Nandys have realised painfully, there is no substitute for individual planning — considering one’s individual needs and capacity to invest.
Individual planning has become even more crucial today, with the nature of employment changing in the developing open economy— self-employment has burgeoned, contractual employment has become more common as has productivity-linked terms of employment. Benefits are no longer automatically on tap. Company pension plans, even in the public sector,are increasingly shifting to a defined contribution model from one based on defined benefit.
Even more so than when Dr Nandy was a young man, it’s become incumbent on every individual to make studied choices in retirement planning.
Today, retirement planning offers a wide range of options in terms of accumulation and annuity payments, other benefits and subscription-payment schemes, allowing subscribers to plan on the basis of the age at which they plan to retire and the monthly pension they calculate they will require. Even if the plan is to retire at 45, the pension scheme can be structured accordingly! Some offer spousal retirement benefits which let you plan for a healthy retirement for you and your spouse, even in your absence.
Pension plans from life insurers could be another lucrative option, which not only lets you plan for retirement in a structured systematic and disciplined manner. These can be purchased on a lump-sum payment or payment of regular annual premiums over a period of time. The benefit of income after retirement can be realised immediately upon retirement or deferred wholly or in part; the monthly annuity would be calculated accordingly. Annuity payments could be (chosen) for a lifetime or for a guaranteed period of time and can be extended to cover the life of a nominee.
Today, Dr Nandy would have had the choice of augmenting his government pension with a private pension plan with greater benefit-choices. And, if he could have projected inflation and calculated his dependent’s needs more accurately, he and Mrs Nandy would be going to the Ramkrishna Mission more often.
By V. Viswanand, Director and Head - Products and Persistency Management, Max Life Insurance
NOTE: The views expressed are those of the author.