Principal Financial Group (PFG), the largest pension player in the United States, is looking to launch its pension business in India.
“We already have fairly advanced plans and will launch this programme in October,” said Norman Sorensen, president and chief executive officer of Principal International Group, a division of the Principal Financial Group.
Chances are that PFG will set up a separate company to launch pension plans. “We don’t know yet as the structure is yet to be defined. However, we believe the expertise that we have on a global basis in this area is so significant that we can bring to bear an independent company,” Sorensen said.
If PFC does set up a separate company to manage its pension fund business, it will be the first instance of a private pension fund company in India, soliciting as well managing money for building a retirement corpus.
Currently six pension fund managers manage money for the money raised under the New Pension Scheme. These are SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.
These pension funds just manage the money raised under NPS, and have nothing to do with raising or soliciting that money from investors.
The other option is to launch the business through Principal Mutual Fund, a joint venture that Principal has with Punjab National Bank and Vijaya Bank.
On whether this business will be regulated by Securities and Exchange Board of India (Sebi), Sorensen said, “Sure. There is no reason to regulate it otherwise”.
Currently pension plans are offered by insurance companies, which are regulated by the Insurance and Regulatory Development Authority of India (Irda). However, Franklin Templeton Mutual Fund does offer a pension plan regulated by Sebi.
PFG manages $300 billion worldwide (The entire Indian mutual fund industry manages around $169 billion). “In Brazil we are the number two pension player and we manage $18 billion in pensions. In China, we manage only $6 billion. In Mexico and Malaysia we manage $5 billion and $6 billion, respectively,” said Sorensen.
So what exactly is PFG’s plan?
“We have something in the United States called target funds. We intend to introduce those funds in India,” said Sorensen. “Target funds basically target your age. A 25-year-old who has a target date of retirement of 2050, is likely to invest in target retirement fund 2050. And that’s why the name. The fund will probably begin with 80% investment into equity and with age the allocation to equity will come down. It basically increases the conservatism of the investment portfolio as your age grows,” he added.
Also, the investment for these pension plans is so carried out thatit is better than average performance. “It does not intend to at any point be number one in the market. Why? Because then you take more risk,” said Swanson.
And what will happen to the accumulated money on retirement? Well it all depends on the individual who invests in the pension plan. “This is absolutely retirement money but it is up to you what you do with that money afterwards,” said Sorensen.
“The idea behind the retirement plan is to provide income until you pass away. The money can be put into an immediate annuity, so that it provides fixed income or it can be invested in some very conservative fund. And we would not recommend equity of course,” he explained.
How is this product different from pension plans offered by insurance companies?
“There is no restriction on withdrawal unlike some of these pension plans,” said Sorensen. “Some people decide to take out some money before retirement, (which is) not necessarily a wise thing because the money seizes to accumulate,” he added.
Pension plans of insurance companies come with a lock in of 5 years. Over and above this, at maturity, an individual who is holding a pension plan from an insurance company has to necessarily buy immediate annuities using two third of the corpus. The remaining one-third can be withdrawn.
Source: http://www.dnaindia.com/money/report_principal-to-launch-pension-fund-in-october_1388270
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