National Conference on Social Security & Role of Equity Market ASSOCHAM August 3, 2016 Dr B S Bhandari Whole Time Member (Economics) Pension Fund Regulatory and Development Authority, India

Overview Income, Demographics & Occupation structure Govt. Initiatives in Social Security: Pension Landscape in India National Pension System: Structure & Coverage Role of PFRDA in Protecting Interest of Employees/ subscribers Cost-Benefit Analysis of various Schemes

Income, Demographics & Occupation Structure

Population in Five Year Age-Group

Decadal Growth Rates of Elderly & General Population

Old Dependency Ratio India : 1991 to 2011 Old Dependency Ratio, India Old Dependency Ratio = No. of persons in age group 60 years or more ÷ No. of persons in age group years ODR is continuously rising, leading to higher responsibility on working age population to support the aged population

Employment in Organized and Unorganized Sector (Million) NSS Round Total Employment Organized Sector Workers Unorganized Sector Workers % Organized Sector Workers % Unorganized Sector Workers 55th round ( ) st round ( ) th round ( ) th round ( )

Social Security: Pension Landscape in India

Pension Landscape Organised Sector Central and State Government Employees – DB System Central Govt: 5.3 Million pensioners, 3.7 million serving EPFO : 3.6 lakh establishments, 34.9 million active members, 5.1 million pensioners, Exempted funds Superannuation funds Occupational provident funds Coal Miners units lakh members Assam Tea Plantation tea estates lakh members Jammu & Kashmir Provident Fund - Seamens’ provident Fund - 52,855 National Pension System 13.0 million Social Pension (means tested) National Social Assistance Programme - IGNOAPS – million - IGNWPS million - IGNDPS – 1.0 million Personal Pension Pension Products of Insurance Companies and MFs Public Provident Fund Pension coverage estimated to be just about 18 % of working population and % of working age population

Voluntary Pension plans Superannuation funds either privately run by managers appointed by employer’s constituted Trusts or provided by the Life Insurance Corporation (LIC) Annuities provided by the life insurance companies regulated by the Insurance Regulatory & Development Authority of India (IRDAI) Pension/ Retirement Plans floated by mutual funds regulated by the Securities & Exchange Board of India (SEBI). These are not mandatory but enjoy tax deductions at contribution, accumulation and partially at withdrawal stages and are subject to prudential investment regulations as per IRDAI or SEBI

Pension Reforms : Introduction of NPS Pension Fund Regulatory & Development Authority (PFRDA) established initially through a resolution in 2003 & by an Act in 2014 PFRDA Act Preamble: “…. to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.” A shift from Defined Benefit non-contributory pay-as-you-go pension system to Defined Contribution pension system - National Pension System (NPS) notified with effect from the 1st January, 2004 initially for new recruits to Govt service. All but 2 State govts have also joined NPS. Since May, 2009 extended to all citizens including self employed professionals and others in the unorganized sector on a voluntary basis

Oversight office NPS Architecture for Government Sector

No. of subscribers and AUM

SectorNumber of Subscribers As on (in billions) Number of Subscribers (% of Total) Total Assets Under Management (Rs cr) Total Assets Under Management (% of Total) Central Government , State Government , Sub Total ,21, Corporate , All Citizen , Sub Total , NPS Lite , APY Sub Total , Grand Total ,37,

Investment Pattern – Govt. Employees Up to 50% in Government securities, Up to 45% in Corporate Debt, Up to 15% in Equity & related instruments Up to 5% in Short term debt instruments & related investments and Up to 5% in Asset backed, trust structured etc. investments

 Investment Option can be changed once in a financial year Age (in Years)Asset Class EAsset Class CAsset Class G Upto 3550%30%20% 3648%29%23% 3746%28%26% and Above10% 80% Active Choice Subscriber decides allocation pattern amongst E, C and G Auto Choice Funds managed on the pattern of a lifecycle fund Asset ClassCap on Investment Equity (E)50% Corporate Bonds (C)100% Government Securities (G)100% 18

Returns since inception (31 st March 2016) Pension Funds→SBIUTILIC KOTA K RELIA NCEICICIHDFC Schemes↓ CG SG Corporate-CG TIER I E C G TIER II E C G NPS Swavalamban

Tax incentives under NPS (Tier-1) On Employee’s contribution : Eligible for tax deduction up to 10% of salary (Basic + DA). Within the overall ceiling of Rs Lacs On Employer’s contribution : Up to 10% of Basic & DA (no upper ceiling ) under 80CCD(2). This is over and above 80 C. Exclusive Tax benefit : From F.Y , subscribers allowed tax deduction in addition to the deduction allowed under Sec. 80CCD(1) for contribution to NPS account subject to a maximum of Rs. 50,000/-

Partial Withdrawal Withdrawal not exceeding twenty-five percent (25%) of own the contribution for following purposes: Higher education and Marriage of children including a legally adopted child. Purchase/construction of one residential house. Treatment for specified illnesses – suffered by subscriber, legally wedded spouse, children or dependent parents. Subject to : Subscriber should have been in NPS for at least ten years Maximum three withdrawals allowed with a gap of 5 years in between.

Fund Managers under NPS – SBI PENSION FUNDS PRIVATE LIMITED – UTI RETIREMENT SOLUTIONS LIMITED – LIC PENSION FUND LIMITED – ICICI PRUDENTIAL PENSION FUNDS MANAGEMENT COMPANY LIMITED – KOTAK MAHINDRA PENSION FUND LIMITED – RELIANCE CAPITAL PENSION FUND LIMITED – HDFC PENSION MANAGEMENT COMPANY LIMITED 22

List of Annuity service providers 1.SBI Life Insurance Company Limited 2.HDFC Standard Life Insurance Co. Ltd. 3.ICICI Prudential Life Insurance Company Limited 4.Life Insurance Corporation of India 5.Star Union Dai-ichi Life Insurance Company Limited 23

Annuities Annuity for life. Annuity guaranteed for 5, 10, 15 or 20 years and for life thereafter. Annuity for life with return of purchase price on death. Annuity for life increasing at simple rate of 3 per cent p.a. Annuity for life with a provision for 50 per cent of the annuity to the spouse of the annuitant for life on death of the annuitant. Annuity for life with a provision for 100 per cent of the annuity to the spouse of the annuitant for life on death of the annuitant. Annuity for life with a provision for 100 per cent of the annuity payable to the spouse of the annuitant for life on death of the annuitant, with return of purchase price on the death of last survivor.

Grievance Management  Central Grievance Management System (CGMS) is the platform to register grievances for all entities in CRA system  Stipulated timeframe to resolve grievance.  Unresolved grievance gets escalated.  alert sent to concerned entity on resolution/ escalation.  Monitored by NPS Trust / PFRDA. 25

Challenges Coverage – Awareness – Financial literacy Affordability Adequacy Sustainability Efficiency Security

Discussion Questions Comments Observations 27

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