The Principal Financial Group, a global retirement and investment management leader, starts its Principal Retirement Advisors (PRA) operation, a retirement solutions firm, from Tuesday. Wanting to capitalise on the middle-class population, the company feels the parent group's experience in other countries will help it here. Speaking to Neha Pandey Deoras, Ned Burmeister, senior vice-president & chief operating officer, feels PRA will face no competition from financial planners, though it will offer a one-on-one advisory service. Edited excerpts:
Given that most Indians rely on friends/relatives for investment advice and there are many financial planners, what will be your strategy here?
I don't think friends and relatives can tell you how much you need post retirement. They can give ideas about products to put money in. That is the gap we will fill. We will offer customised advisory service to each individual and tell them which product suits their needs. Financial planners tend to push products and, hence, they don't feel individuals are forthcoming for planning. We will focus on need-based retirement service.
What does your study of Indian investors show? What are the lacunae in their investment/retirement planning? In comparison, how are their foreign counterparts placed?
There is more similarity than differences among investors across emerging markets. Of the growing middle class, people who need to invest/plan, as the government's pension programme may be inadequate, is huge. Only one of every eight individuals have started planning/saving for their retirement. And, those who have been planning, are not disciplined. They have just kept aside some money for retirement. This is very typical of the fast-growing economies.
The good thing about Indians is they have an inclination towards saving. But saving is different from investing. Saving means just putting aside money without planning. While investing means strategically putting money for future means. Indians lag here.
What is your take on the New Pension Scheme (NPS)? Is it a good bet?
We are optimistic about NPS and its evolution. The government should be active about a pension scheme for individuals and contributions towards it. That way, the Indian government has done good by launching the NPS. However, for the scheme to be effective, some tax incentive needs to be given and the private sector companies need to be financially incentivised. That is, product pricing cannot be so low and controlled as this will impact product innovation and promotion.
NPS has insufficient incentives for the private sector and, hence, the low offtake as there is no push for the product. NPS is the beginning of an effective pension scheme. India can avoid Europe-like problems by coming out with a good pension scheme. The government can take help from the private sector since the former has limited resources.
Most feel insurance plans are meant for investing. Do you feel insurance-cum-investment plans should be an integral part of one’s portfolio for future needs?
There is always a debate on whether it makes sense to mix investment with insurance or to keep both separate. Globally, individuals are moving towards keeping the two separate.
Which instruments would you recommend for retirement planning?
A diversified portfolio comprising short and long-term fixed income, equity and balanced funds. There is also room for including international funds in the portfolio. Public provident fund is a good instrument for building a retirement corpus given the fixed interest benefit it has, but that might or might not last long. Internationally, there is an increasing inclination towards life-cycle funds and that is, logical.
How big an issue is the absence of pension plans from insurance companies in the market?
The regulatory and product designing is still evolving. At some stage, the government and the insurance regulator will look at what the industry wants. But given that there are no pension products in the industry, the private sector companies have not been incentivised enough to come up with better products. Even mutual funds should bring out pension plans.
US’ 401K can be easily emulated in India, but we need to remember it is successful today after 30 years. Therefore, we feel NPS will also evolve into a good pension scheme over time.
