by Moiz Mannan
It’s just a month or so that we discussed in this space the merits of planning early for retirement. More so, for non-resident Indians (NRIs) as the present global scenario has thrown up more uncertainties over employment that ever before.
Recently, we read media reports about more than 60,000 Indian workers in Saudi Arabia registering themselves at their country’s missions to avail of an amnesty scheme following stricter implementation of labour laws aimed at nationalising the workforce. A similar fate might befall migrant workers in other countries too.
It is therefore shocking to know from the results of a sample survey in the UAE that only 10 percent of the Indian workers there have actually invested in a retirement plan. The study may have been conducted on only 300 respondents, but this finding is borne out by the abysmally poor response in India to the Mahatma Gandhi Pravasi Suraksha Yojana (MGPSY), which aims to provide overseas emigration check required (ECR) workers with pension, insurance and resettlement amount upon their return to India.
What is more shocking is that three in every four NRI expects to fall back on his or her children for care after retirement. While such family bonding is great to know, on the practical side such expectations may spell doom. Social science researchers have pointed out numerous instances where spouses and children have prevented their bread-winners from returning home only because they had got accustomed to a lavish lifestyle based on remittances. In such a scenario, how realistic would it be for the bread-winner to expect his children to take care of him and not add him to the list of unwanted expense heads in their account books?
From this rather ostrich-like approach to future planning arises fatalistic ignorance about the investment options. It seems a majority of them never look for investment advice or ignore it when it’s given. Indeed, it is difficult to awaken those pretending to be asleep. The survey, conducted by Standard Life NRI in the UAE shows that risk aversion and lack of professional advice led to critical gaps in financial and retirement planning among the NRI respondents.
The findings of the survey are more surprising because some 75 percent of respondents were said to have three to five financial dependants. While as many as 90 percent of the respondents have made long term investments in the past, most of their preferences were towards relatively illiquid assets like gold/diamonds (77 percent) and property (55 percent).
The interest in asset classes like mutual funds (19 percent) and equities (15 percent) was rather low, the study found. As far as property is concerned, it can hardly be called as investment in most cases because NRIs generally tend to purchase houses to live in rather sell at a profit.
Indian equity market may have faced some challenging times owing to global influences, but if one looks at the larger picture, the economy has withstood the worst. Foreign money as well as domestic investment has continued to flow into the capital markets. Opportunities to make inflation-beating gains still exist in vast amounts for the medium to long term investor. For the purpose of retirement, it is advisable to start investing early and look at the long term.
We had discussed how mutual funds and equity investments are a very good option for NRIs to make their money work keeping retirement or job loss in mind.
For the conservative NRIs, some options provided by the government include the MGPSY and the National Pension Scheme (NPS). As per Standard Life’s report many (63 percent) of the respondents feel positive about the Indian government’s NPS but most may not have actually subscribed to it. While 25 percent are of the opinion that that NPS will not provide sufficient income for their retirement years, and 13 percent did not have any response to the NPS.
NPS invests in a mix of equity and debt. The scheme allows for three investment options: equity in which a maximum of 50 percent can be invested, fixed-income instruments other than government securities and government securities.
The scheme has two accounts. The tier I account is the basic one that works strictly like a pension product. One can start investing from the age of 18 and the money gets locked in till he or she is 60. Tier II account works more like a savings account, which gives one the flexibility to withdraw any time.
Pension products by insurance companies have once again begun to emerge in the market. Unlike earlier policies which were pure equity products, pension plans have a considerable portion in debt. This is due to the mandatory guarantee on the capital on death and maturity. So this could be another option for the risk-averse.
As for MGPSY, the Ministry of Overseas Indians Affairs has been struggling to find any takers. The scheme was launched a year ago targeting semi-skilled and unskilled workers who are working in the 17 ECR countries, to encourage them to save for their old age, to facilitate their return to India and also be an insurance cover.
However, according to official information recently put up by the ministry before a parliamentary committee, only 154 persons have so far enrolled of whom 45 subscribers were found to be eligible to receive government co-contribution.
Members of the parliamentary standing committee on external affairs were said to have been “dismayed” by this poor response and reportedly instructed the ministry to do more. What the ministry needs to do is not just promote a particular scheme, but use its machinery abroad to educate Indian workers in general about the need to invest for the future. It would be wonderful if the many organisations of Indians active across the globe could also lend a hand to this effort. The Peninsula
