Indians investing in pension schemes focus erroneously on monetary returns than ascertaining whether the investment would help them maintain their standard of life post-retirement, a new book pension management says.
"Indians often spend time in studying the statistics and the exact quantum of pension they would receive after retirement while deciding on a pension scheme," says Arun Muralidhar, who has authored the book Innovations in Pension Fund Management.
"However, they often completely miss out the point and often fail to assess whether the pension would enable them to lead their current life style several years down the line post-retirement," the Princeton-based pension expert says.
"Many a time, the returns might appear good currently but they might not necessarily help sustain the current life style several years down the line," he said.
Hence, according to him, India should refrain from adopting the pension models of affluent countries like the United States where the social security scenario was completely different from that in India.
Instead, India should turn to the Dutch model, which is a social model that attempts to provide a decent lifestyle post-retirement, says Muralidhar, who is also the chairman of McCube, developers and provider of decision support products for investment management.
The Dutch model is based on 'defined benefits' where employees pool their money together and are assured of a pension returns that could help maintain a decent lifestyle despite the fluctuations in the market scenario, Muralidhar added.
The employees need to be handed a statement that not just quantifies the pension they would draw post retirement but also translate in tangible terms on the kind of lifestyle it could assure several years down the line, he said.
Such tangible statements would help an employee to gauge whether what he was saving was far too less for his old age and whether he needed to augment his savings to ensure the same lifestyle.
"Just statements that he would draw an X amount of money did not really provide him or her a clear picture and was sometimes misleading," he said.
According to Muralidhar, letting employees, lacking expertise and knowledge or background of the financial scenario, to decide their own pension options often left them making decisions that were not information-based nor fetched returns as expected.
Hence, organisations and corporates needed to promote pension models that could assure the best for their employees.
Such corporate pension schemes would help in providing a decent future for its employees, he said.
Regulators should also ensure that the pension investments made were safe. A sense of confidence needs to be instilled and confidence built among the employees opting for the pension schemes and investment of pensions funds.
Lauding the move to promote investment of pension funds in the foreign market as a positive one, he said the same would help pensioners to diversify their investment in various options, helping them draw higher returns.
