58% of Indian respondents do not plan for retirement-
Only 13% of the Indian employees are covered by formal pension plans
HSBC, a JV partner of Canara HSBC Oriental Bank of Commerce Life Insurance has released study, ‘The Future of Retirement-It’s time to prepare’
As per the findings of study, at 42%, Indian survey respondents topped the list on ‘feeling’ well prepared to handle their retirement amongst the 15 countries surveyed. However, 58% of the respondents in India do not know what their retirement income will look like. One of the factors contributing to the unpreparedness is the lack of understanding about their long-term finances over short-term - 59% of survey respondents in India understood their short-term finances very well and 50% are confident about their long-term finances.
India has a high saving ratio compared to other countries. However, the survey reveals that the motives of saving are more skewed towards saving for children accounting for 35% of savings than saving for retirement which accounted for only 12%.”
According to the survey, another reason why Indians are not saving for their retirement could be the fact that the average age in India is just 26 years. This actually gives India an advantageous position. In 2050, the number of dependent adults in India will reach the number of dependent children for the first time. This crossover arrives much later when compared with countries with mature economies, and indeed other emerging economies, giving India more time to prepare, or what is often called a ‘demographic dividend’.
According to the survey, at present, formal pension arrangements cover only 13% of the country’s paid employees in India, with a total of 284 million people without pension coverage. According to OECD1 Private Pensions Outlook 2008, pension fund assets in India are very small and make up to only 5% of India’s GDP.
The survey also throws light on the impact of the economic downturn. Over the last 18 months, the economic downturn has had a significant impact on people’s finances and their attitude towards long-term investments. The IMF (International Monetary Fund) gives an optimistic forecast for India GDP growth at 5.1% in 2009 and 6.5% in 2010.The survey reflects the optimistic outlook of Indians towards the economic recovery. At least, 59% of Indians expect the downturn to last less than 12 months; whereas, globally the optimism falls to just 29%.
In spite of the optimism, the survey clearly brings to the forefront the changing priorities of Indians in crisis times like these towards retirement. The findings revealed that 1-in-8 people in India have either reduced or stopped saving into a pension. A further 18% say they would like to seek financial advice to help them make sense of the choices facing them.
The study has also showed that people globally trust their banks as a popular primary source of advice. In India at least 31% of the respondents have shown an openness to consult or take advice from financial institutions.
With demographic dividend, a high savings ratio and keenness to undertake financial planning, the future of retirement in India looks bright especially if current trends continue.
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