PFRDA chief puts India’s retirement-income replacement rate at 35–40% versus 60% global level

PFRDA chief puts India's retirement-income replacement rate at 35-40% versus 60% global level Ramann notes Indians need to invest more for retirement as PFRDA targets 30 crore residents via NPS, APY over the next four to five years.

Key points

• India's retirement-income replacement rate is at present around 35-40%, compared with a roughly 60% level globally, according to Pension Fund Regulatory and Development Authority (PFRDA) Chairman S.
• So, if I were to say NPS costs the administration ₹100, UPS may cost administration ₹170, ₹180.
• The regulator is conducting around 350-400 outreach programmes nationwide, targeting groups including farmers, milk cooperatives, farmer-producer organisations and MSMEs.
• Ramann remarked 10-12 State governments have unveiled UPS, with individual schemes potentially containing variations.
• Contributions among NPS subscribers at present range from ₹200 a month to ₹2 lakh a month, Mr.

India's retirement-income replacement rate is at present around 35-40%, compared with a roughly 60% level globally, according to Pension Fund Regulatory and Development Authority (PFRDA) Chairman S. As the regulator seeks to cover 30 crore individuals through the National Pension System (NPS) and Atal Pension Yojana (APY) over the next four to five years, ramann.

"Roughly, the world notes your replacement rate should be concerning 60%. So 60% of your last pay should roughly be the kind of funds that you secure when you are in retirement mode. In India, it's in the region of regarding 35% to 40%, " Mr. Ramann remarked during an interaction in Chennai on Friday.

"So we have to encourage individuals to invest more. That's the only way, " he continued.

Meanwhile, the question of how much individuals need to save for retirement came up as PFRDA seeks to expand pension coverage beyond administration employees.

Asked whether the regulator would set a target for how much an individual should save to secure a decent retirement income, Mr. Ramann remarked it was challenging to predict how much a person would ultimately save. "It's impossible to, you know, predict that, " he remarked.

He remarked PFRDA could instead provide illustrations of how regular contributions could potentially grow over time.

"I can only support you by saying that if you save 20, 00 rupees every month from past performance, I can tell you that it is feasible that after 18 years, your corpus may be ₹10 lakhs. That's the kind of guidance that we can offer, " Mr. Ramann remarked.

He remarked the amount an individual saves depends on their lifestyle and priorities.

"I cannot have any control over that. How much you save is totally dependent on your lifestyle and your priorities. So, we can only encourage individuals to save for the long run, " he stated.

Contributions among NPS subscribers at present range from ₹200 a month to ₹2 lakh a month, Mr. Ramann remarked.

"Individuals are contributing 200 rupees a month. Individuals are contributing 2 lakh rupees a month. So both exist, " he remarked.

PFRDA at present has concerning 2.2 crore NPS subscribers, including administration and non-government subscribers, Mr. Ramann remarked.

While administration enrollment is growing on its own, the regulator is focusing on the non-government segment.

"Our job is to focus on the non-government sector because those are the people who don't have the benefit of NPS, they don't know about NPS and we must bring them into the NPS, " he remarked.

PFRDA wants to cover 30 crore individuals through NPS and APY over the next four to five years, Mr. Ramann remarked, adding that APY has around 10 crore customers.

For context, the regulator is conducting around 350-400 outreach programmes nationwide, targeting groups including farmers, milk cooperatives, farmer-producer organisations and MSMEs.

Mr. Ramann additionally stated PFRDA sees significant scope to expand pension coverage among self-employed individuals and gig workers.

PFRDA is relying on digital platforms to expand NPS distribution. While NPS Tatkal is being developed with NPCI and BHIM, Mr, the StAR NPS platform is being developed with BSE. Ramann remarked.

Notably, the platforms allow banks, pension funds and distributors, including mutual fund distributors, to onboard subscribers digitally. Contributions can additionally be produced through the UPI.

PFRDA provides distributors with a ₹200 onboarding fee and roughly 0.3% of assets under management (AUM) as annual commission, Mr. Ramann remarked.

He remarked digital onboarding could substantially reduce the cost of acquiring customers.

"Between this, I am confident that we should be able to get people interested because on these digital platforms, it is costing zero to the distributors, be it banks or pension funds to bring in the commission, to bring in the customers, " he remarked.

Asked what major pension reform he would prioritise, he remarked the focus would be on "resilience in our returns."

He remarked pension funds need to diversify throughout asset classes to generate better returns while keeping volatility low.

Mr. Ramann remarked the system at present has around 5% of the corpus in alternative assets, including REITs, InvITs and AIFs.

PFRDA is examining how pension funds can develop the expertise and capability to create direct investments in businesses, he noted.

Meanwhile, the PFRDA chief cited Canadian pension funds' investments in India as an example of the investment capability he wants Indian pension funds to develop.

For context, the objective, he remarked, is to achieve "a good double digit return year after year" while maintaining low volatility. UPS cost higher than NPS, lower than OPS.

On the Unified Pension Scheme (UPS), Mr. Ramann remarked its cost to the administration would be higher than NPS but substantially lower than the Old Pension Scheme (OPS).

"So, if I were to say NPS costs the administration ₹100, UPS may cost administration ₹170, ₹180. OPS costs the administration ₹450. So, that's the kind of difference we are talking regarding, " he said, adding that "OPS is unsustainable."

Mr. Ramann remarked 10-12 State governments have unveiled UPS, with individual schemes potentially containing variations.

At the Central Administration level, concerning 1.3-1.4 lakh employees opted for UPS out of roughly 22 lakh, he noted, exuding confidence that UPS should work in the long run, particularly if inflation comes down.

PFRDA has 14 pension fund managers, and Mr. Ramann remarked greater competition could improve investment returns and expand the reach of NPS.

While additionally helping expand reach, asked what subscribers would gain from having more pension fund managers, he remarked the funds are primarily focused on investment and getting better returns for subscribers.

"Pension funds do two things. One, they are largely focused on investment and getting better returns for their subscribers. That is really where the expertise lies and more and more individuals who come in can provide better competition in terms of the returns that they provide to the customers, " he stated.

PFRDA's NPS Vatsalya, which allows parents or guardians to build retirement savings for children, has crossed four lakh unique customers, Mr. Ramann remarked.

In practice, the regulator is additionally preparing NPS Swasthya. It combines pension savings with a dedicated health corpus and top-up health insurance.

Mr. Ramann remarked PFRDA has completed a proof of concept and finalised the product design. The product is projected to be rolled out in a month.

PFRDA has additionally extended the age up to which subscribers can remain invested in NPS to 85, alongside changes aimed at providing greater flexibility around entry, exit and scheme selection.

In short, PFRDA chief puts India's retirement-income replacement rate at 35 is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.