India Considers Allowing Bespoke Pensions In $175 Billion Industry: Report
India's retirement fund regulator is planning to permit individual pension houses to launch tailor-made investment plans in what could be a major overhaul for the $175 billion industry.
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Foreign investment has been increasingly flowing into the sector through joint ventures in recent years.
India's pension regulatory body is considering a significant reform to allow pension houses to develop customized investment plans, potentially transforming the $175 billion industry, according to sources with knowledge of the matter.
The Pension Fund Regulatory and Development Authority (PFRDA) has conducted multiple discussions with fund managers regarding this potential change, which aims to enhance growth in India's pension sector, said the sources, who requested anonymity as the information hasn't been made public.
Despite the rapid growth of India's pension market, current pensioners have limited investment options as the regulator has prioritized risk management. Typically, pension fund managers like SBI Pension Fund Pvt. Ltd. or ICICI Prudential Pension Fund purchase securities that align with the asset allocation predetermined by the PFRDA.
If approved, the new proposal would enable pension fund houses to design their own specialized products to accommodate a broader spectrum of investor preferences and risk tolerances, according to the sources. This would allow funds to market a wider range of potential returns and target specific customer segments. One potential example mentioned is a pension plan specifically designed for women.
When contacted, a PFRDA spokesperson did not respond to a request for comment.
Currently, pensions under the National Pension System can invest in four asset classes - equity, corporate debt, government bonds, and alternative investment funds. Customers can select from a limited number of pre-approved PFRDA plans based on their risk appetite.
According to the sources, fund houses would be permitted to implement slightly higher fees to offset increased marketing expenses, which would be passed on to customers.
The pension industry has been seeing growing foreign investment interest through joint ventures. Approximately four years ago, the regulator increased the foreign direct investment limit from 49% to 74%.