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PENSION AND RETIREMENT SOLUTIONS ASSOCHAM WORKSHOP 23rd Feb 2008

PENSION AND RETIREMENT SOLUTIONS ASSOCHAM WORKSHOP 23rd Feb 2008. PRESENTATION PATH. Retirement Planning Need Level of awareness Need of Financial literacy Reality Available Mechanisms Individual level, Employer level, Govt. level Financial instruments What SBI Life offers?

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PENSION AND RETIREMENT SOLUTIONS ASSOCHAM WORKSHOP 23rd Feb 2008

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  1. PENSION AND RETIREMENT SOLUTIONSASSOCHAM WORKSHOP23rd Feb 2008

  2. PRESENTATION PATH • Retirement Planning • Need • Level of awareness • Need of Financial literacy • Reality • Available Mechanisms • Individual level, Employer level, Govt. level • Financial instruments • What SBI Life offers? • Individual & Group Plans • Performance Highlights

  3. RETIREMENT PLANNING - NEED • To ensure financial independence of yourself and your family against • Increasing cost of post retirement living • Health Care Costs • Increasing life expectancy

  4. Not enough to sustain the lifestyle for retirement days (Pension only 1/4th of last drawn salary) NEED FOR PENSION IT MAY FURTHER DETERIORATE WITH FALLING INTEREST RATE

  5. Need for Pension….? Income Expenses (Rs. in ‘000 p.a.)

  6. Rapid increase in elderly population expected to touch 113 million by 2016, OASIS EXIXSTING PENSION SUPPORT SYSTEM • Covers only 11% of working population. • Few private employers provide pension provisions. • Existing schemes are either unfunded or woefully under-funded. • Joint Family System • Fixed Assets – very low level of financial savings.

  7. Expected to increase exponentially in future EXTENT OF BURDEN ON GOVT. Source: Indian Pension System by Hatton, Joshi, Fangli

  8. BREAKDOWN OF TRADITIONAL SUPPORT SYSTEM • Traditional and informal methods of income security such as Joint family system – Breaking down • joint family system is on the decline; according to a survey 60% of families across India are nuclear in nature.

  9. The Yesteryears 60 67 Working Today Retirement Years 55 Working 75 Retirement Years SOME MORE FACTS • Average Life Expectancy would increase from 67 years to 75 years in next 20 years • Dramatic increase in Living Cost

  10. LEVEL OF AWARENESS • According to a survey 96% of households cannot survive beyond a year on their current savings in case of any eventuality. (Source: NCAER-MNYL survey2008) • Ignorance about their financial security. • Thoughts of saving for everything but old age. • To buy a house, a car, finance children’s education, other short term goals. • Retirement comes last. • Reliance on traditional and informal methods such as joint family system

  11. NEED OF FINANCIAL LITERACY • According to a NCAER-MNYL survey • Indian households keep 65% of their savings in liquid assets (like bank or post office deposits and cash at home) • 23% In physical investments like real estate and gold. • Only 12% in financial instruments.

  12. WHAT SBI LIFE OFFERS? • Retirement Solutions for Employers • Group Superannuation Plan • CapAssure Superannuation Plan • Group Gratuity Plan • CapAssure Superannuation Plan • Golden Gratuity ULIP • Group Leave Encashment Plan • CapAssure Leave Encashment Plan • Pension Plans for Individuals • Unit Plus II Pension • Horizon II Pension

  13. GROUP PLANS - HIGHLIGHTS • CapAssure Plans -> Highlights • Capital Protection Schemes • Funds are managed on a dedicated group pool (80% in Debt (GoI Securities, Corporate Debt) and a maximum 20% in Equities). • Returns realized during the year are declared at the end of each year. • Returns once declared are credited to the client’s account and becomes part of capital for the next year.

  14. INDIVIDUAL PLANS - HIGHLIGHTS • Individual Pension Plans

  15. Employee Benefit Schemes

  16. EMPLOYEE BENEFITS • TYPES: • GRATUITY • SUPERANNUATION • LEAVE ENCASHMENT • GROUP INSURANCE • OTHERS Employee Benefit Solutions

  17. HOW BENEFITS ARE MANAGED? • TWO OPTIONS: • Paygo – pay from current revenue as and when it falls due. • Funded – set aside a dedicated fund for benefit disbursements. • Self Managed Fund • Insurer Managed Fund • Tax benefits are available if funded through a trust (IT Rule 87, 101) • Investments prescribed by I.T. Rule 67. • An Insurance policy is a qualifying investment. • Accounting Standard (AS) 15 prescribes how: • Employee Benefit Liabilities are to be valued? • Scheme Assets and Liabilities are to be shown in Balance Sheet? • AS 15 effective from Financial Year ending 31st March 2008. TIME TO ACT IS NOW Employee Benefit Solutions

  18. WHAT I.T. RULES SAY? • Relevant I.T. Rules: 67, 87, 101 • Tax Exemption if: • Funded through irrevocable trust. • Annual provision up to 8.33% of annual wage bill. • Trust follows I.T. investment pattern (Rule 67). • If invested with an Insurer Employee Benefit Solutions

  19. WHAT AS 15 SAYS? • EB Liabilities have to be valued as per prescribed Actuarial Valuation Method and Actuarial assumptions. • Immediate recognition of net benefit liabilities on the company’s balance sheet. • Scheme Assets have to be ‘marked to market’. • Market Value of assets to be shown in balance sheet. Employee Benefit Solutions

  20. HOW IS IT DONE? Board decides to fund benefit liability Sets up Trust; Trust deed; Trustees etc. COMPANY Register Trust With I.T. Deptt. Fund by making contributions Evaluate and select Insurer INSURER Employee Benefit Solutions

  21. ARE YOU SELF-MANAGING EB? • Restricted investment options • Min. 15% in State Govt. Secs.; 25% in Central Govt. Secs. • Only upto a max. of 5% in equities. • Stringent norms in liquidating any investments made. • Hence lower returns • Cost of Administration • Sub-optimal EB Cost Management • AS 15 implications: assets to be valued each year at market value; therefore fluctuating provisioning requirement. Smoothen your EB Cost by Outsourcing to an Insurer Employee Benefit Solutions

  22. Returns? How high? How Stable? IS YOUR EB, INSURER MANAGED? • Is your Capital Safe? • How Stable is your Insurer? • Does it Protect your Capital? Employee Benefit Solutions

  23. WHAT DO WE OFFER Employee Benefit Solutions

  24. SBI LIFE SCHEMES • CapAssure Gratuity Scheme • CapAssure Superannuation Scheme • CapAssure Leave Encashment Scheme • ULIP Gratuity fund • Various Annuities/Pensions Employee Benefit Solutions

  25. CAPASSURE GRATUITY SCHEME • A non-unit linked scheme – No Market Risks!!! • Your contributions are protected (CAPITAL GUARANTEE) • Funds are managed in a dedicated Group Gratuity Pool; (80% in Debt(GoI Securities, Corporate Debt, Corporate Loans) and a Maximum of 20% in Equities) • Returns realized during the year are declared at the end of each year. • Returns once declared are credited to clients account and becomes part of capital for the next year. Employee Benefit Solutions

  26. A UNIQUE FEATURE • Bonus allocation in the beginning. In the traditional as well as ULIP version Employee Benefit Solutions

  27. SBI Life’s Performance – Compounded Returns • If you had invested 100 with us 4 years ago, your fund would be worth 154.82. Employee Benefit Solutions

  28. SBI LIFE STRENGTH WE ARE PRUDENT SPENDERS SBI Life spends the least amount of policy holders premium Lowest Operating Expense Ratio (percentage of net premium) amongst all the life insurance companies in India. Source: IRDA Annual Report Employee Benefit Solutions

  29. OUR FINANCIAL STRENGTH SBI Life’s Capital has been supporting the business and not expenses Source: IRDA Annual Report Employee Benefit Solutions

  30. OUR FINANCIAL STRENGTH • We maintain substantial Solvency Margin to support our business and protect policy holders. • We do not depend on sovereign guarantees for this purpose. Employee Benefit Solutions

  31. OUR INVESTMENT PHILOSOPHY Investment Objective “The investment objective of the Group Retirement Scheme is Capital Protection with Optimal Return to the policyholders on a Consistent basis within a reasonable risk framework” Employee Benefit Solutions

  32. OUR INVESTMENT STRATEGY • Debt: • Typical Investments Instruments – primarily government securities and top quality PSU/Corporate debt instruments • Prime Strategy Drivers –Duration Management, Spread Analysis, Limited Credit risk • Strategy factors inflation rate, interest rate, liquidity, policy changes, rating changes etc. • Equity: • Investment Horizon – Medium to Long term • Investment Style – Growth and Value • Key Investment Criteria – Sustainable Business Model, Company Fundamentals, Earnings Outlook, Valuations, Emphasis on large caps, Return on Investments Employee Benefit Solutions

  33. OUR INVESTMENT GUIDLINES • Debt: • At least 40% exposure in Govt. Securities • Investment only in rated companies of AA and above • Exposure in any one Group not to exceed 10% of SBI Life’s Controlled Funds • Maximum exposure of 5% in Promoter Group Companies • Other prudent and exposure norms • Equity: • Board approved list of companies • Investment only in companies listed on BSE/NSE and which has paid 4% or more dividend in each of the last 7 yrs • Total Investment only in companies having net worth of Rs. 50 Crs. or more • Exposure in any one Group not to exceed 10% of SBI Life’s Controlled Funds • Maximum exposure of 5% in Promoter Group Companies • Other prudent and exposure norms Employee Benefit Solutions

  34. OUR INVESTMENT PROCESS • Multilayered • Approved by the Board • Supervised by the sub committee • Strict ALM guidelines • Clear separation of front and back office. • Strict sectoral, industry,institution sub limits.

  35. WE AIM TO DELIGHT CUSTOMERS • Gratuity scheme is long term contract and has regular servicing requirements. • We have clearly defined turn around time (TAT) for every service activity. • All TATs are monitored very strictly; Monthly review of TATs. • SBI Life will nominate a Key Account Manager to manage relationship. • A Service level agreement to customize our service TATs. Employee Benefit Solutions

  36. SBI Life With Us, You’re Sure Employee Benefit Solutions

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