Issues and Options in the Pay-out Phase in Defined Contribution Pension Schemes

Consistent with international trends, the role of a Defined Contribution (DC) schemes is expected to grow substantially in India. The payout phase of DC schemes has received relatively less attention than the accumulation phase. Key risks to be addressed are the longevity and inflation risks, along with provisions for survivors’ benefits. The paper discusses pros and cons of lump sum, a phased withdrawal, and annuities as options during the payout phase. It emphasizes that for small accumulations, a phased withdrawal may be a better option than annuities. There is a need to research on designing annuities which permit differing risk sharing arrangements among insurance companies, the annuity buyers, and government. Need for developing a world class pension research centre is strongly emphasized to enable India to address pension challenges in an informed and effective manner.