Financial institutions launch retirement solutions

By Gamini Warushamana

Economic conditions, demographic changes and social issues have led financial institutions to launch innovative retirement solutions.

HNB Assurance last week launched 'My Pension', a novel retirement scheme. This is the third in the series in recent months.

The first was launched by the Bank of Ceylon and the second by the National Savings Bank.

The underlining economic factor creating the demand for retirement schemes is the low interest rate prevailing in the market.

When interest rates were around 15-20 percent, senior citizens who retired from private and semi-government sectors earned a sufficient fixed monthly income by investing their lump sum retirement benefits such as provident fund or gratuity in fixed deposits.

However, in the past few years interest rates have dropped to around six percent. Analysts said that crises in several finance companies created panic in investors and retired people today seek safe investment products with higher returns.

Managing Director, HNB, Jonathan Alles said that the new product was great at the macroeconomic and social levels.

Today, interest rates are at an all time low. Interest rates fluctuate in cycles and today, the cycles are shorter.

“Since the Sri Lankan economy is on an exponential growth path, we cannot expect interest rate to increase to previous levels in the near future.

Demographical changes, especially the aging population and resulting social needs and issues create demand for retirement solutions,” he said.

Today 12.5 percent of the population is over 60-years-old and this will increase to 25 percent by 2041, Alles said.

HNB Assurance, Managing Director Manjula de Silva said ‘My Pension’ is a simple retirement solution that ensures a fixed monthly income.

These people got a fixed monthly income during their time of service and, therefore, they seek a similar monthly income.

The monthly pension is one reason for young people to choose government sector jobs as against private sector jobs. In Sri Lanka, around 500,000 people receive monthly pensions and the majority of them are retired government employees. However, they comprise only about 20 percent of the aged people in the country.

Silva said that the ‘My Pension’ fund will invest only in government securities and therefore, the investments were secure.

Central Bank officials encourage financial institutions to launch products of this type, he said.