India's National Pension System (NPS), a government-backed retirement plan, faces a peculiar challenge: declining interest from both potential enrollees and retirement advisors. Despite India's growing economy and an increasing need for retirement planning, several factors contribute to this reluctance.

One major reason is the growing appeal of the new tax regime, which doesn't offer tax benefits on NPS contributions, making it less attractive to many. The NPS has multiple choices and complex withdrawal and annuity rules, requiring significant sales effort. The low monetary incentives make it even harder to sell at scale.

Challenges in Retirement Planning

Retirement planning in India is becoming increasingly critical due to rising life expectancy and evolving family structures. Indians are living longer, with the average life expectancy rising. The traditional joint family system is also giving way to nuclear families, placing greater responsibility on individuals to secure their financial future.

Several challenges exacerbate the problem:

• Inflation: The relentless impact of inflation erodes purchasing power. India's economy, characterized by rapid growth, makes inflation a particular threat to long-term financial security.
• Healthcare Costs: Medical expenses in India are increasing rapidly, making it crucial to factor in healthcare needs during retirement planning.
• Lack of Awareness: Widespread lack of financial literacy and awareness about retirement needs leads to poor financial decisions and inadequate preparation.
• Inadequate Pension Coverage: Only a small percentage of India's working population is covered by formal pension schemes, leaving a vast majority without structured retirement benefits.
• Market Volatility: Retirement planning faces hurdles like potential healthcare costs, market volatility, and lack of advisor expertise.

Disincentives for Retirement Advisors

Given these challenges, why aren't more financial advisors stepping in to guide individuals through the complexities of retirement planning and the NPS? The answer lies in a combination of factors that make it a less-than-enticing career path:

• Low Monetary Incentives: The commission and fees associated with selling and managing NPS accounts are not lucrative enough to attract and retain financial advisors.
• Complex Product: The NPS is not a simple product to sell. It involves multiple choices, complex withdrawal rules, and annuity options, requiring significant effort to educate potential customers.
• Lack of Innovative Products: The wealth management industry faces a lack of innovative products. Advisors' offerings are dominated by Mutual Funds, PMS and AIFs.
• Client Acquisition Difficulties: Financial advisors face client acquisition difficulties, especially in competitive markets.
• Information Overload: Handling large amounts of financial data makes it hard to focus on what matters.

The Way Forward

To encourage more individuals to invest in their retirement through the NPS and to incentivize financial advisors to promote it, several changes are needed:

• Increase Financial Literacy: Greater awareness campaigns are needed to educate the public about the importance of retirement planning and the benefits of the NPS.
• Simplify the NPS: Simplifying the NPS structure, withdrawal rules, and annuity options would make it more accessible and easier to understand for both investors and advisors.
• Improve Incentives: Increasing the commission and fees for financial advisors would make it a more attractive career path and encourage them to promote the NPS more actively.
• Tax Benefits: The government should consider making pension income tax-free for senior citizens. Tax benefits should apply to retirement savings withdrawn 20 years or later.
• Innovative Products: For Wealth advisors, diverse offerings, enhanced services and the ability to generate alpha beyond the traditional avenues will be the differentiator.

The National Pension System can be a valuable tool for securing financial futures. However, addressing the challenges and disincentives that prevent both individuals and advisors from fully embracing it is crucial. By simplifying the system, increasing awareness, and improving incentives, India can move towards a future where more people can retire with financial security and dignity.