The pension market in India is likely to grow to Rs 20 lakh crore by 2015 due to expansion in the organised sector workforce, a study has said.
"As more and more working people join the organised sector, India's pension fund (PF) market is set to grow at a rapid pace to reach about Rs 20 lakh crore by 2015 from the present level of about Rs 15.4 lakh crore," industry body Assocham said in a study.
Low pension coverage and large workforce in the unorganised sector also provides massive opportunities for private sector and foreign players to enter the pension market in India, Assocham said in its study 'Financial Markets: Time for Next Generation Reforms'.
Over 80 per cent of the working people are in the unorganised sector without regular salary and benefits.
The PF market is growing at a compounded annual growth rate (CAGR) of about 10%, but there is enormous potential as more than 30 crore working people do not have formal pension benefits.
Need for social security net for growing number of senior citizens and expanding workforce will drive the growth further and only about 12% of the working population is covered by retirement benefit scheme.
Among others, savings pattern, growing life expectancy, growing desire for better life standard post retirement, government steps in pension reforms and new pension schemes favour the growth potential.
Also, there is a need to divert greater amount of pension funds into infrastructure sector as banks are constrained to finance such projects due to asset-liability mis-match as funds are required for over a period of 15 years, while deposits are of shorter maturity.
"The government alone cannot invest huge amounts of money required to shore up the physical infrastructure...substantial portion of funds for this should come from long-term source of pension funds," said D S Rawat, Secretary General, Assocham.
He said, "there may be a gap of about 30% in infrastructure funding requirement, targeted at Rs 41 lakh crore in the 12th plan (2012-17), we need to tap the pension and insurance funds to bridge this gap".
According to the study, there is a huge scope for foreign direct investment (FDI) in pension market because slowdown in the economy has affected corporate performance.
It said opening up of FDI in pension funds will help India attract slightly more than one% of total pension funds held by pension fund companies worldwide.
"...India would be able to raise the share of pension fun assets to GDP from the current level of five% to about 17% by 2017 which would result in assets worth USD 165.85 billion," it said.
FDI in pension funds would further increase the volume of assets that can be invested into infrastructure and help in realising the infrastructure needs of India, the study said.
The long-term investors, such as pension and insurance funds, have had a limited presence in Indian market due to regulatory restrictions, so Assocham is pitching for reforms in the sector, it said.
Pension products account for over 30% of the total insurance market. The prominent players in the industry, include Life Insurance Corporation of India (LIC), SBI Life, ICICI Prudential, HDFC Standard Life and TATA AIG Life.