Employees’ retirement planning

Developing a coherent pension system


March 17, 2017

/ By / New Delhi

India is taking a systemic approach towards designing a coherent pension system, dealing with the post-retirement challenges that its citizens face. Based on a recent survey, policymakers are now trying to fill the gap that exists in pension coverage across the country.

Studies conducted over the years have not projected a very healthy image of the pension system in India. Collected data indicates that a very small portion of the Indian working population is protected against old-age income insecurity.

The 2011 Census had shown that only 12 pc of the Indian working population (i.e. approximately 58 million) were covered under any pension plan, indicating at inadequate pension savings of the covered population and ringing alarm bells for the concerned authorities.

Population projections, which suggest that the elderly residents (people aged 60 and above) will triple between 2010 and 2050, reaching a figure of 331 million, have rang an alarm bell for the authorities. A combination of ageing population, weakening of the joint family support system and low pension penetration is making it imperative for policymakers to pay urgent attention to the enormous challenge of providing income security after retirement.

To take effective measures and have proper pension schemes in place, KPMG India conducted an Employer Pension Plans Survey this year, similar to the survey conducted in 2015, to have an overview of the pension plans from company representatives from diverse sectors including industrial markets, IT/BPO, automotive, healthcare, financial services, consumer markets etc. In all, 167 business entities responded to the survey.

The survey highlights that a majority of the employers seek better retirement planning and indicates that tax benefits are considered as the primary reason to opt for the National Pension System (NPS), similar to the results of Employer Pension Plans Survey of 2015.

Subscribers of the National Pension System are allowed to withdraw sums with tax exemption of up to 40 pc.

Currently, the Indian citizens are protected under pension plans like Employees’ Provident Fund (EPF), Voluntary Provident Fund (VPF), National Pension System (NPS) and the Superannuation Fund (SAF).

“Social security for the old age is an important issue in the public policy discourse of any country. In India, this has been high on the priority list of the government that has taken a series of measures to extend the reach of social security net. FICCI has also identified pensions as a key area for its work and is engaged with all the stakeholders to evolve policies that can help the growth of this sector,”  says Dr A Didar Singh, Secretary General, FICCI.

Any further developments in the area would mean better policies and an upgradation in the existing ones. Already, certain developments by the Indian government and the two regulators, EPFO and PFRDA, are providing benefits to the subscribers of the existing policies.

The PFRDA has introduced two new Life Cycle Funds, the Aggressive Life Cycle Fund and Conservative Life Cycle Fund for private sector subscribers to provide a pre-programmed diversification of assets depending on the age and risk profile of the subscriber.

Having introduced new measures like these already, the authorities are now looking at even better planning of schemes.

“Given the large gap in pension coverage, both the regulators, EPFO and PFRDA, along with the government and industry need to collaborate and build a comprehensive and sustainable pension system in India. Significant efforts are required for building sufficient institutional capacity for implementing pension reforms in India,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG India.

The Employer Pension Plan Survey, 2017, shows that the system of automatic enrolment of employees under the EPF regime is largely prevalent and that tax benefits for employees continue to be the primary motivator. Based on these and other findings, the policy makers should be able to leverage their measures.



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