Page 83 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) 23062 COPY.indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
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bottom line (profits) even if the two economies/ being done by them while maintaining the
country aren’t majority interconnected. From same consumption levels. Behaviourally, in
supply side, the corporate shall become a risky case of exigencies we tend to focus more on the
entity for investment and leading to reduction resolution of the current situation which may
of the demand side parties only to increase come at the cost of long-term effects on pension
the promised yield on the floated instrument corpus.
to keep it lucrative enough for the investment
basket. Few slow quarters of business Another variable that maybe deliberated
performance for a multinational may also lead upon is the prolonged interest rate prevailing
in the economy. Considering other variables
to suboptimal returns in the portfolio wherein
the script has been included. like longevity and mortality tables remaining
unchanged; a continued tenure of low interest
Currency risk is another variable which can rate would eventually push the annuity
germinate from Geopolitical events. Pension providers to readjust the annuity rates offered
funds having exposure to international/foreign by them to the prospective annuitants.
assets can have a dent on portfolio returns in Similarly, a higher interest rate scenario would
case of foreign exchange volatility. Recent crash benefit the new entrants by virtue of availing
of Rubble after onset of the conflict resulting better annuity rate for same annuities as offered
in suspended trading is a typical example of earlier. In expectation of the returns that an
such knock-on effect. Similarly, a sovereign annuity provider can generate from the lump
default may lead not only in degradation but sum they are provided from the annuitant
to a complete erosion of the intrinsic value of may have an impact on the annuity rates
the asset. being offered by them on the same product in
the future. As Fixed income instruments are
a preferred investment options for annuity
Annuities (lump sum and interest rates)
providers, similar to the case of Gsec, the
The corpus/lump sum amount available
geopolitical effects would have a considerable
for anodization and the interest rates can be impact on the monetary policy of the country
considered be major financial factors effecting and eventually impact the related yields
the annuity rates. If the accumulated corpus is
and portfolio returns of the annuity service
not adequate enough to get the desired amount provider.
and type of annuity then the objective of
retirement planning doesn’t get accomplished. Risk mitigation measures
After all the planning, accumulation and
Just like any other risk, even Geopolitical risks
investment in the pension pot over the period
years has been done to maintain the standard needs to be managed. The ramifications of
of living equivalent to preretirement to the best such risks can be catastrophic if not addressed
timely. Early warning mechanism with define
extent possible. Hence, to benefit from power
of compounding, the individuals needs to start indicators can be a very useful tool to monitor
any upcoming/ensuing risk in the financial
saving early and in a reasonable proportion to
their income levels. External risks can dent system and to adopt a proactive approach.
the income levels of the individual that may Parameters related to macroeconomic
interlinkages along with defined bands of
eventually impact the amount of investment

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