In order to embark upon the ambitious journey towards a pensioned society, India would require a systemic approach for designing a coherent pension system. As a measure of the enormity of the challenge that India faces, the 2011 Census showed that only 12 per cent of the Indian working population (i.e. approximately 58 million) were covered under any pension plan. The pension savings of the covered population are also not adequate. This translates into the challenge of only a very small portion of the Indian working population being protected against old-age income insecurity. Further, the population projections suggest that the elderly residents (people aged 60 and above) will triple from 2010 to 2050 and the number of elderly will reach 331 million in India by 2050. A combination of aging population, weakening of the joint family support system and low pension penetration makes it imperative for policymakers to pay urgent attention to the enormous challenge of providing income security after retirement. The aspiration of a pensioned society would need greater emphasis on implementing pension reforms. A lot of effort and planning is needed for building sufficient capacity, scalability and support for implementation of such reforms, highlights the FICCI-KPMG White paper released recently.
For the white paper, KPMG in India again conducted an Employer Pension Plans Survey this year similar to the survey conducted in the year 2015, to have an overview of the pension plans from company representatives from diverse sectors (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 are of the view that more emphasis needs to be given towards employees’ retirement planning. The survey responses indicate that tax benefits are considered as the primary reason to opt for NPS similar to the results of Employer Pension Plans Survey of 2015. A majority of respondents felt that the contribution towards retirement savings should be in the range of 20-30 percent of one’s salary. “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. The FICCI-KPMG knowledge paper released on the occasion of Pensions Conference is a good reference tool that provides information on the priorities of the Indian corporate sector with regard to pension planning for employees.
We hope that this paper will prove to be a key input in policy discussions in this important area”, said Dr. A Didar Singh, Secretary General, FICCI.
“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”, said Ms. Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.
Some of the other important findings of the Employer Pension Plan Survey, 2017 are:
- The system of automatic enrolment of employees under the EPF regime is largely prevalent. Around 84 per cent of the respondent companies mandatorily enroll their employees for EPFO membership, irrespective of the salary level
- Nearly 55 per cent of the survey respondents confirmed that employees in their organisations are exercising the option of contributing to Voluntary Provident Fund (VPF)
- Around 82 per cent of the respondent companies are contributing towards PF on full basic salary of the employees while 13 per cent restrict the same on statutory monthly limit of INR 15,000
- Thirty six per cent of the respondent companies have registered for National Pension System (NPS). Further, almost 33 per cent of organisations that currently do not have NPS, are considering to register for NPS
- Tax benefits for employees continue to be the primary motivator (52 per cent of the respondents) for employers to opt or consider NPS in this year’s survey as well. A large number of respondents (42 per cent) view employee empowerment for pension planning as one of the motivating factors for opting/considering NPS
- Further, almost 57 per cent of the respondents stated that there has been an increase in NPS enrolment due to Finance Act, 2016 announcement regarding tax benefits on withdrawal of NPS contributions
- Only 29 per cent of the respondents have set up superannuation fund (SAF) for their employees. Of the 94 respondents, which do not have SAF, only 10 organisations have plans to set up an SAF
- A large majority of the respondents (around 92 per cent) agree on the importance of tax savings as an important consideration for voluntary contributions to retirement plans.