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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Pension Reforms in India,4,th,Global Conference of Actuaries,India Life,Hewitt,15,th,February 2002,Pension Reforms in India4th G,1,Agenda,Background&Current Framework,Basic Issues,Reform Initiatives,Reform Initiatives in the private sector,India Life,Hewitt,Agenda Background&Current Fr,2,Background,Strong Joint family concept,With the Patriarch as the pivot provided Old Age Security,Was adequate in a agrarian&rural society,Industrialization and urbanization undermined the traditional concept,Even if prevalent effectiveness as an old age security tool is doubtful,India Life,Hewitt,Background Strong Joint family,3,Old age Security Plans,Civil Service Schemes,Government at Centre and the state assured pension to their employees,Pension is non-contributory,indexed,Defined Benefit&totally unfunded and paid on PAYG,Provident Fund contributed by employees,Most of the Quasi Government institutions have adopted the similar schemes,India Life,Hewitt,Old age Security Plans Civil S,4,Old age Security Plans,Mandated Industry Schemes,Provident Fund Scheme mandated by a central legislation across the country,Provides for contributory Provident Fund,Pension towards which a part of the Provident Fund Contributions are diverted,Gratuity Scheme again mandated by a central legislation,Lumpsum payment based on last drawn wages at the termination of employment after a five years of continuous service,India Life,Hewitt,Old age Security PlansMandated,5,Old age Security Plans,Voluntary Industry Schemes,Superannuation Plans introduced by employers voluntarily,Predominantly introduced by Corporates and DB,Either administered by the Trustees or by LIC,Other Old age security schemes introduced by the Governments,Governments at the state as well as at the centre have introduced a few schemes,India Life,Hewitt,Old age Security PlansVoluntar,6,Coverage,Estimated working population is about 350 million,15%of which is salaried employees(of which Government 23%&Non-Government 49%),53%are self employed,31%are Casual contract workers,Only the salaried employees are covered by any kind of pension plans,28%of such salaried employees are also not covered.,Effectively this means hardly 10%of the working population is covered.,As a percentage of population it is a miniscule 3%,India Life,Hewitt,CoverageEstimated working popu,7,Basic Issues,India Life,Hewitt,Basic Issues India Life,8,India Life,Hewitt,Pension Crises,Civil Service Pensions,Central Govt Pension liability is 15%of the net tax revenue as on 2000-01,Combined with State pensions the pension liability accounts for 2.25%of the GDP,Demographics,Expected population increase between 1991 and 2016 is 49%,The elderly persons(60 and above)would increase by 107%,By 2026 elderly persons would constitute 14%of the population,India Life,9,India Life,Hewitt,Other basic issues,Regulatory Framework,There are a number of legislations&authorities that govern Pension plans,Employee PF is over regulated but under supervised,Voluntary Employer Pension schemes are not governed at all,Philosophy of regulation,Explicit framework or implicit framework,Type of Benefit,Defined Benefit or Defined contribution,Tax regime,Currently Voluntary Superannuation plans are EET while PF and gratuity are to a large extent EEE.,India Life,10,India Life,Hewitt,Other basic issues,Accumulation issues,Funding to be made mandatory,Currently Civil service pension is totally unfunded,Pension part of Employee PF may not be adequately funded,Gratuity is most of the time unfunded,Asset segregation,Voluntary SA and Gratuity Trusts are required to be run as irrevocable trusts,EPFO and LIC pool the corporate pension assets,India Life,11,India Life,Hewitt,Other basic issues,Design Issues,Vesting,No statutory norms,On voluntary pension plans it is defined by the employer,sometime excessively harsh against employees,Eligibility,Portability,Indexation,Access to corpus,India Life,12,India Life,Hewitt,Other basic issues,Payout Issues,Method,Lump sum Vs Annuity,Source,Lump sums are paid by Trusts,annuities need to be purchased from Insurance company,Insurance&Guarantee,Should Pensions be guaranteed on the lines of PBGC?,Prudent underwriting and Valuation,India Life,13,India Life,Hewitt,Other basic issues,Industry Issues,Authorization criteria,Administrators,Fund Managers,Trustees,Actuaries,Expense ratios,On voluntary schemes employer has to bear all costs,No transparency on costs charged by EPFO;Employer needs to bear the same.,Prudent norms needs to be evolved,India Life,14,India Life,Hewitt,Other basic issues,Investments,Explicit frame work or Prudent Person,Information Disclosure/Audit/Supervision,Norms for information disclosure,Accounting conventions,etc.,Supervision and regulatory metrics could be made transparent and enforced vigorously,India Life,15,India Life,Hewitt,Reforms,OASIS Committee the first effort,Recommended the
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