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In the whole Indian savings and investment landscape, one of the things that should have been there but isn't is a retirement account. A retirement account will enable savers to use a much bigger range of savings instruments for retirement and pension needs. This would also enable mutual funds to cater to a segment they are well-suited to serve. Interestingly, in his speech to the CII's annual mutual fund industry conference last month, Sebi (Securities and Exchange Board of India) chairman UK Sinha had said that pension funds were one of the areas that mutual funds could expand into.

The idea of a retirement account is very simple. Your retirement savings, instead of being a particular instrument, could simply be an account. The account would be maintained by one of the depositories. You could use the money in this account to invest in any number of specified types of investments. Most importantly, this money can be shifted between different investments. As long as it doesn't come out of the retirement account, the transfers are not taxed.

Finally, the accumulated growth can be withdrawn at the retirement age. Just like the NPS, a part of it could be used to buy an annuity, which produces an income for the entire life of the beneficiary. One of the advantages of such a system would be the flexibility it would afford. Not just mutual funds, all kinds of investment types, including mundane types such as bank fixed deposits, could be a part of it. Instead of a specified type of investment, retirement savings could contain any type of investment suitable to a saver.

Moreover, it is likely that such a system would breathe some commercial life into the retirement savings system. Various entities that provide a range of different investments could then become part of the retirement ecosystem. While abuses are certainly possible, the necessity of these investments for being very long-term would afford it protection from a lot of the problems investors generally create for themselves. Of course, a regulator, possibly the PFRDA itself, could monitor the instruments being offered for the retirement account. The need for reasonable cost and transparency levels would likely suffice to ensure that things don't go off-track.

Around the world, such a retirement account system is nothing new and many countries have one. The most wellknown is the so-called 401(k) account in the US. In this account, a set amount is deducted from salaries and is matched by employers. Basically, it's like a retirement account version of the EPFO. While 401(k) is the best known one, most developed countries have something similar. One innovative variation to this idea is the one called the Roth 401 in the US. The money put into this is not tax-free, ie, it is income on which tax is paid. However, once it is put away in the pension account till the retirement age, further gains derived from the funds are also tax-free.

Based on the information available publicly, one can see that the idea of a retirement account has been discussed a number of times within the government. It was actually there in the original 2009 draft of the new Direct Tax Code.

In the revised DTC draft of June 2010, this was one of the provisions that were dropped. The reason given was that such a system would be too complex to run on a nationwide basis. However, what istoo complex today could well be comfortably implementable a year down the line. With the coming of the UID and the increasing success of large IT projects in the government, such a system could well be feasible. The scale of successful IT systems that are running well in India in the government sector seems to be expanding constantly. A unified retirement account could be just the thing that is needed to revolutionise retirement savings and pensions in India.