The key to successful retirement planning is to start early

The key to successful retirement planning is to start early
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First Published: Mon, Feb 18 2008. 12 04 AM IST
The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am the human resources head of a medium-sized company. I have been reading articles in papers on retirement planning, lack of social security, et cetera. I would like to help my employees plan their retirement years. How do I go about this?
It is good that you are concerned about your employees’ future. You could set up a group pension scheme for them.
A group pension scheme is a product that an employer sets up for the benefit of his employees; everybody on the staff can become a member.
Most life insurance firms offer these products, which are sometimes called group superannuation products. A well-structured group pension plan helps create an irrevocable fund during the working lifetime of the employees that provides their pension benefits after retirement.
The employer can contribute up to 15% of basic salary of the employee towards this fund. The employee can also make voluntary contributions to the superannuation fund.
These schemes carry certain tax advantages; currently, investment up to Rs1 lakh per annum in group superannuation schemes by employers for each employee is exempt from fringe benefit tax.
I am 23 years old and have just started working. I am concerned about my future and want to invest in a pension plan. Do you think it is too early for me to go in for a pension plan? Also, since my annual income is just Rs2.5 lakh, do you think it will be economical for me to invest in pension?
The key to successful retirement planning is to start early. Some key points to take into consideration when planning for retirement are: desired monthly income post-retirement; impact of inflation on your savings and income needs; growing medical needs—as you get older, health care tends to become more expensive and you may need medical treatment more frequently; increasing longevity, which means people are living longer and their pension fund needs to allow for this.
Hence, it is advisable to think about retirement in one’s early earning years as there is no pressure to support a growing family and you don’t have high medical expenses.
There are a number of pension products available in the market. The earlier you start, the less you would have to pay in order to provide for a secure retirement.
(These questions and answers have been carried earlier but, keeping in mind the tax season, we are repeating some of the frequent queries that are raised at this time of the year.)
Readers are welcome to write in with their queries to The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Bert Paterson, managing director, Aviva India.
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First Published: Mon, Feb 18 2008. 12 04 AM IST