New Delhi: The current pension landscape in India is marked by low pension coverage and inadequate pensions. Proactive and policy interventions, while a majority of the Indian population is still young, are required and can help avert an impending pension crisis, states KPMG in India and the Federation of Indian Chambers of Commerce and Industry (FICCI)’s whitepaper on the prevalent practices and challenges of employer related pensions in India. The report, titled ‘Employee pensions in India – current practices, challenges and prospects’, was launched today at FICCI’s annual conference on pensions sector in India.
The key stakeholders- – government, regulators, employees and employers – should engage in a focussed and constructive discussion to explore ways to broaden the pension coverage in India and to build a robust pension system. Careful and nuanced interventions are required in the tax regime for pension benefits, in reducing the administrative burden on employers and for encouraging additional pension savings.
For the discussed white paper, KPMG in India conducted an Employer pension plans survey, this year, to seek inputs from company representatives from diverse sectors (consumer markets, energy and natural resources, healthcare, hospitality, retail, private equity, automobile and IT/ITES among others). The survey highlights that pension should relate to the existing salary levels and also must protect against inflation post retirement. In terms of tax benefits, it is important to consider higher tax deductions and giving more tax benefits to NPS. The need for clear communication to all the employers/employees on pension schemes and their benefits is also emphasised.
The survey also reveals that 91 per cent of the surveyed companies are contributing PF on full basic salary, while nine per cent contribute on the statutory limit of INR15,000. However, only 40 per cent respondents organise awareness sessions/workshops for imparting information on retirement planning. While a majority of the respondents believe the current plans in place are adequate (56 per cent), a significantly large population (44 per cent) feels that more can be done to provide for their employees’ retirement planning.
“Increasing life expectancy, combined with the weakening joint family system, makes it imperative for India to craft a comprehensive pension system to avoid old-age poverty and social distress. The pension system in India should be able to encourage sufficient lifetime pension contributions to ensure a decent standard of living after retirement. Even small changes in contributions and investment returns can make a big difference in final retirement savings, leveraging the power of compounding,” said Ms. Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.
“The importance of a robust pensions system cannot be overemphasised in a country like India, where a significant proportion of the population is bereft of any social security scheme. The FICCI-KPMG white paper provides a comparative analysis of employer pension plans like EPF, NPS and Superannuation Funds, and lists factors that have a bearing on growth of these plans. The paper also presents views of employers on factors that could help improve the pension coverage in the country. We hope that these recommendations would be looked into by the government, as providing old age social security is high on the public policy agenda,” said Dr. A Didar Singh, Secretary General, FICCI.
Some of the other important findings of the survey are as follows:
• The system of automatic enrolment of employees under the EPF regime, irrespective of salary, is largely prevalent (done by 89 per cent of the respondents).
• Nearly 73 per cent of the respondents confirmed that employees in their organisations exercise the option of contribution to VPF.
• Twenty two per cent of the respondent companies have registered for the National Pension System (NPS). Further, of the total companies not registered for NPS (35 companies out of total respondents of 45), almost half are considering registration for NPS.
• Tax benefits for their employees is seen as the primary motivator for NPS registration (52 per cent of the respondents), 44 percent mentioned employee empowerment as the primary motivator while 4 per cent deemed being at par with the industry peers as the primary motivator.
• Majority of the respondents (70 per cent), who have registered/considering registering for NPS, said that only managers and senior level employees are opting for NPS.
• Only 36 per cent of the respondents have set-up superannuation fund (SAF) for their employees. Of the respondent companies which have SAF or are considering setting it up, 82 per cent revealed that SAF is not meant for all employees.
• There was unanimity among the respondents on the importance of tax benefits for voluntary contributions to PF, NPS and SAF.