Summary of this article
Early investing gives more time to compound.
NPS can strengthen employee retirement planning.
Employers can promote retirement financial wellness.
Retirement planning is often treated as a financial goal for the later stages of life. However, the longer one waits to start investing, the tougher it becomes for the investments to grow sufficient to serve as an effective retirement corpus. The power of starting early lies not only in the amount that is invested, but also in the time available for the investments to grow, which is through compounding.
At the Retire Smart: Financial Wellness Leadership Series, Sumit Kumar, chief general manager, Pension Fund Regulatory and Development Authority (PFRDA), highlighted the need for companies to make retirement planning an integral part of employee financial wellness. At a gathering of corporate human resources and finance professionals, he further emphasised why corporate National Pension System (NPS) should be incorporated into employee benefit structures, thereby giving workers a clear opportunity to help them systematically build their retirement savings.
One of the key messages from his speech was the importance on starting early. He cited examples of two individuals of the same age, showing how the duration of investments can significantly influence the retirement outcome. The underlying lesson, he said, is that delaying investments for retirement means that the individual is losing out on valuable years of compounding.
How Are Younger Employees Benefited?
For employees who have just joined the workforce or are relatively young, they have an edge in creating a large corpus for their retirement. Rather than waiting until their 40’s or 50’s to start thinking about retirement, they can start their retirement planning with small and manageable contributions, which will also allow their savings to grow and compound; this way, investments have a chance to deliver returns over a longer period of time.
He said the equity scheme under NPS has generated returns of nearly 13 per cent over the period, while a combination of schemes could deliver returns of around 10 per cent, underlining the role of long-term market-linked investing.
Another aspect Kumar discussed was the role of NPS within the employee’s financial ecosystem. Beyond the returns, the system offers flexibility around the contributions made by the employees; this allows them to adjust their contributions over time. This can make retirement savings much more adaptable as an individual’s income and financial circumstances change over time, be it the job market, family, or medical emergencies, or any other instances that require a person to make a difference in their contributions.
The responsibility for financial wellness does not depend entirely on employees. Employers can also play an equally important part in creating awareness and making benefits accessible.
For employers, integrating NPS into corporate benefits can help bring retirement planning into the workforce, where employees can be notified about the importance of starting early.
With a large volume of youngsters entering the workforce, a properly planned retirement plan becomes highly non-negotiable. Ultimately, retirement planning is about giving savings enough time to compound. For young Indians starting today, even a modest contribution can provide a significant advantage over waiting until retirement is closer, he further said.
