Limited education about financial savings and a lack of retirement planning pose a challenge in extending and deepening the reach of voluntary pension plans, the Reserve Bank of India (RBI) said today.
Moreover, the apex bank favoured moving towards a risk-based supervision (RBS) approach on pension products.
"Limited education about financial savings and a lack of retirement planning outlook pose a challenge in increasing the penetration of voluntary pension schemes," the RBI said in its Financial Stability Report released here.
As per the report, the role of an advisory entity will be critical in propagating the schemes to the masses in order to achieve adequate social security.
"Retirement advisers, with adequate knowledge of a prospect's needs and knowledge of the pension products, will be in a better position to advise individuals, who have different levels of education, financial literacy, wealth, income potential, capacity to save and financial goals."
Pension watchdog PFRDA is in the process of framing regulations for retirement advisers.
On the National Pension System (NPS), the report said it continues to grow in terms of subscribers as well as assets under management.
"In line with banking and insurance sector regulators, the pension supervisory authorities in various countries have been moving towards a risk-based supervision (RBS) approach," it said.
RBS can be recognised as a structured process aimed at identifying the most critical risks that confront each pension fund (PF) and address this through a focused review by the supervisor.
A key part of this approach involves the supervisory authority transitioning from checking detailed compliance requirements for the operation of PFs to reviewing internal decision-making processes and competencies of the bodies of these funds, it said.
In case of 'defined contribution' schemes like the NPS, market and credit risks are borne entirely by investor, it said.
Currently, the risk management system is essentially rule based for all PFs and the degree of supervisory attention is uniform across all such funds in the market.
As the system matures and the number of entities under NPS and other schemes come under the purview of PFRDA, a move towards adopting RBS will become more relevant to ensure efficient allocation of supervisory resources, it said.
PFRDA is already engaged with the World Bank for risk mapping in the pension sector and developing a framework for RBS for the pension sector in the country, it added.
