A Curious Contract - Exploring the Nuances of Gold-Backed Pension Products

Abstract

This paper explores the possibility of introducing a pension product in India by monetising the existing stock of gold. The exercise draws inspiration from the RBI’s KUB Rao Committee’s Report which explicitly recommended exploring such an option. This study argues that in the context of India, gold and gold-backed pension products can be visualised as a culturally driven defined contribution plan and this arrangement operates under a tax-exempt-exempt (TEE) regime. Despite being a promising idea, full introduction of gold-backed pension product is not tenable because of the absence of a credible market-based benchmark for rate of interest on physical gold. However a gold-backed term annuity for a period not exceeding 10 years appears feasible in the coming years.