India mulls allowing bespoke pensions in $175 billion industry

Even though India’s pensions are growing quickly, pensioners in the country generally have little flexibility in how their savings are invested as the regulator sought to control risks. Bloomberg

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, according to people familiar with the matter.

The Pension Fund Regulatory and Development Authority, or PFRDA, has held several rounds of discussions with fund managers on the potential change, which is aimed at boosting the growth of the pension industry in India, said the people, who asked not to be identified because the information is private.

Even though India’s pensions are growing quickly, pensioners in the country generally have little flexibility in how their savings are invested as the regulator sought to control risks. Typically, managers of funds like SBI Pension Fund Pvt. Ltd. or ICICI Prudential Pension Fund buy securities to match the asset mix of plans predetermined by the PFRDA.

If the new proposal were approved, pension fund houses could create their own bespoke products catering to a wider range of investor preferences and risk appetite, said the people. That would allow the funds to advertise a wider range of potential returns, and target customers more specifically. For instance, one possibility is a pension plan aimed at women, the people said.

A spokesperson for the PFRDA did not reply to a request for comment.

At present, pensions under the National Pension System are allowed to invest in four asset classes — equity, debt sold by companies, government bonds and alternative investment funds. The customer can choose from a handful of pre-determined PFRDA plans according to their individual risk appetite.

Fund houses will also be able to charge slightly more fees as they plan to pass higher marketing costs to customers, said the people.

The industry in recent years has been increasingly attracting foreign investment through joint ventures. About four years ago, the regulator raised the limit for foreign direct investment to 74% from 49%.