04-Feb-2007

Freedom To Default

In which we learn that someone has been very clever in framing the pensions reform bill. Putting it briefly:
1. We want more money to flow into the stock market.
2. It has been seen that a majority of people who opt for pension plans go with the default option when asked to choose an investment option.
3. So we ensure that the default option in our pensions reforms bill, is the one in which the money is invested into the stock market.
4. Voila, our end is achieved!
Read about it in the Freedom paper [ registration required ].
...the government is keen to move forward on it as it faces major problems in sustaining current pension plans that promise certain fixed payments to its employees, irrespective of the actual returns on the amounts collected from employees.

In return for moving to a flexible returns system, contributors will get the option to invest their contributions in riskier investment avenues that could offer better returns.
Delectable. Another way of putting the second line would be:
Contributors' money will be put into inherently risky investments and they could end up losing their pension money.
Again, from the article:
..the move is sure to increase the flow of pension money into stocks, given India’s soaring markets that are generating double-digit annual returns to investors.
True, the Indian stock market is soaring right now, but what about the long term - after all, the young risk-taking guy choosing to park his money there is in it for more than an year or so.

Freedom. Smells nice.

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