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Kolkata: Retirement planning is a fast expanding domain in India. In this context, the significance of pension funds can only go up in this country. The point to remember is that pension funds are considered by many as essential as a core component of retirement planning though not the only component.

PFRDA (Pension Fund Regulatory and Development Authority’s) has made a significant reform in this area and ruled that banks can henceforth manage pension funds. While it does not alter the NPS (National Pension System), it allows the banks to step into the scene and it can usher in a lot of changes in the way such products are designed and experienced by the consumer.

Digital catchment and trust

Nilanjan De, director, Wishlist Capital and a mutual fund strategist for more than two decades interprets the PFRDA move as one to boost adoption of pension funds. Though India has a population not many are subscribers to the NPS. The widening of pension fund instruments among banks can overnight drive up their reach, and therefore, popularize the product.

De also points out to a big changes in the trust factor. “Say a particular family is linked with a particular bank for a few decades. The members of the family have developed a bond of trust with the institution. It will be far easier for a member of that family to entrust a fund run by that bank for very long -term savings in comparison to trusting one with less familiarity,” De said.

There is another advantage with banks. Most banks in India now have very robust digital platforms where crores of customers are enlisted and where they conduct a lot of banking transactions regularly. “These constant transactions and interactions generate a familiarity which can induce a lot of customers of banks to accept their pension products when they are ready with them. It is also convenient to have transactions/instruments in one app,” points out De. Analysts point out that this factor can be especially felt in Tier II and Tier III cities where the brick-and-mortar choice is not as wide as in the metros.

The market will structurally get a lift with customers being spoilt for choice. If the big banks launch pension funds first, even then there will be a wide array for choices for the citizens.

The fruits of competition: efficiency and costs

In most market, the fruits of competition are sweet — efficiency in service, superior product design and even lower costs. Significantly, the pension regulator puts a ceiling on fees and sets out investment norms. However, De points out that competition could still improve net returns. Management fees of the pension funds can go down with competition and a part of it could easily be transferred to the subscribers.

“With the multiple scheme framework already in place, allowing banks to sponsor pension funds creates room for persona-based schemes and newer product designs,” commented Vishwajeet Goel, head of Pensionbazaar to the media. In fact, banks will perhaps serve as sponsors of the funds, the distributors of these funds and also service their needs. It will alter the landscape for the better.