At a time when we are moving from a scarcity to a surfeit of retirement funds, one must choose with care, says S Muralidharan, chief marketing officer of SBI Life Insurance.

Apart from hope, ambition and confidence, three less-spoken-about emotions that govern the feelings of any young professional contemplating his or her life ahead are fear, uncertainty and doubt; or, as someone coined the term, FUD. Fear about the future. Uncertainty about sustaining earnings. And doubts about whether the money they have saved will remain safe over the years and keep growing.

In the area of retirement planning, these three elements are very relevant. Financial self-reliance is an essential pre-requisite to enjoy one's old age. As the economic conditions in the country get more competitive and the social milieu becomes more fragile, everyone needs to ensure that their old age will be free of financial problems.

This is more easily said than done. Unlike in advanced countries, it is not compulsory in India for every individual to enroll for a retirement saving plan. The menu of safe and profitable avenues of saving for retirement is limited. Until very recently, the state has not offered any major incentives to those who want to save for retirement. The government offered a tax relief on retirement savings of just Rs10,000 per year and, to add insult to injury, subjected pension payments to tax at the same time.

All this is now hopefully set to change. The limits on pension savings have just been removed. Simultaneously, several life insurance companies have recently launched retirement saving plans. They offer to manage funds set apart for retirement during one's working life, and convert the accumulated saving into annuities or pension payments, anytime from the age of 55 onwards. Several firms focused on managing retirement savings are set to open shop. Their job will be only to manage the funds during the accumulation stage; they will not be involved with annuity payment commitments after one ceases working.

Therefore, if we are moving from a position of scarcity to a state of surfeit of retirement saving plans, how does one make the right choice?

Three elements are important. The first is the safety of the corpus of saving that one puts aside for old age. The popular impression, much written about in money magazines, is that the safety factor is linked to the age of the person choosing a retirement plan. The younger the age, say the pundits, the more risk (s)he can afford to take with savings. This view needs to be taken with a pinch of salt in a low-income country like ours, where every penny set apart for old age security needs careful protection, and ought not to be subjected to the vagaries of the market. In my view, an ironclad guarantee about the corpus of retirement savings is important; it should be a safety net even during one's working life.

Second, we should temper our expectation of returns on retirement savings plans. The popular theory, once more, is that retirement savings deployed in equity markets can significantly increase the returns (through an 'equity premium') in the long run. In fact, there is no demonstrated model on this in India over a long period in which our capital markets have remained transparent and free from manipulation. On the contrary, nearly every bull run in the history of our share markets (except the present one, which is still in process) has been accelerated by a scam and followed by a crash. We should remember that securities market regulation in this country is just a decade old, and the regulator is valiantly battling to correct market imperfections.

The third important element in retirement planning is to pay careful attention to the fees and charges that will be shaved off from your hard-earned savings entrusted to the money manager. Only a few people in the financial industry, leave alone the general public, are aware of the total fund management charges and their varied components. It is important to know that over the long period of regular savings required to take care of retired life, the fees and expenses sequestered by the fund manager could add up to a tidy sum.

We are now in an age of choice for individuals. Retirement planning should, in theory, be based on choices. But choices work only under conditions of order, discipline and total transparency. Until we reach this stage of maturity, retirement planning needs to be handheld by a combination of a farsighted government, an informed regulator and disciplined savers.