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IIEF Occupational Pensions Nov 2009
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IIEF Occupational Pensions Nov 2009

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  • 1. Providing an equitable opportunity to Organized Sector workers to maximize their retirement savings 9th Annual IIEF Pension Policy Conference New Delhi Nov 9, 2009
  • 2. Background •MANDATORY – Provident Fund 15.67% of salary – EPS 8.33% of salary – EDLI 0.55% of salary – Gratuity 4.16% of salary – EPFO Costs 4.58% of contribution • VOLUNTARY – Voluntary Provident Fund – Superannuation 15% of salary
  • 3. Ideal Employer Pensions Policy Perspective Myopia Sustainable; protection; design abuse defaults, leaks Incentivized Coverage %; Voluntary top-ups; Random caps, VPF, SA exemptions Competition/ Regulation & Costs; Supervision; EPFO dual role funded plans Portability; Dormant accounts
  • 4. Ideal Employer Pensions Employer Perspective Crystallized CTC Liability; DC perspective Transparent/ Costs; level, Consistent bearer Regulations Registration/ Competition; Compliance choice Value for Money
  • 5. Ideal Employer Pensions Employee Perspective Moderate Portability Mandatory Deduction Trusteeship & Investment Returns Sustainability; EPS Asset Allocation Tax Flexibility Efficient Access/ Service
  • 6. Change Agenda • First presentation in 1997; status quo, tree • Transmission losses, Holistic perspective • Issue is a priority; kingdom expansion, obesity • Default by EPS: birth defect, no capital return, no commutation, higher early penalty • Philosophy and Plumbing • Woody Allen
  • 7. Philosophy Changes • Unbundle Investment, Regulatory and Admn roles • Allow NPS alternative to employers for EPFO payments; Enforcement • Eliminate loans and withdrawals but lower total contribution • Make a call on EPS • Regulate Superannuation and gratuity trusts • Superannuation policy orphan because elitist; non-discrimination clause • Eliminate arbitrage (tax, costs, etc) between trusts/ unexempt / unfunded • Convert Gratuity to DC, Merge with PF
  • 8. Plumbing Changes • Code number allotment: Use PAN • SBI remittances: branches, jurisdiction, other banks • Window of Exemption for 3-6 months; no EPS or exempt, NCEUS • Filing of compliance: simplify returns, e-filing • Settlements and Workflow: simplify, no individual accounts, slips, SLA • Exemptions • Outsourcing legitimacy: TPA
  • 9. Closing Thoughts • Benefits Regime vs Labour Markets – Unorganized vs. Organized employment; slavery of 21st century – Direct consequences for firm and individual level choices; TL – Need Backpack Benefits – Need diversity; assumptions invalid e.g. TL, Middle of Road – EPFO not service organization; no clients, investment hijack – Next phase of reform is life in 4th decimal place; contracting, SLAs, RAs for IT, CRM • Way forward – Unique Time in India – Missed tryst with destiny; 300 million – Biggest lesson of 18 years of reform; 3Es – Unintended labour market consequences; geography, architecture – Need open architecture, Competition, Portability, Diversity
  • 10. Providing an equitable opportunity to Organized Sector workers to maximize their retirement savings 9th Annual IIEF Pension Policy Conference New Delhi Nov 9, 2009