Current scenario of_social_security_in_india_2


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Current scenario of_social_security_in_india_2

  1. 1. Current Scenario of Social Security in India Financial Management Submitted by Roll No. 11-20 MBA (AB) 2009-11
  2. 2. Presentation Contents
  3. 3. Social Security
  4. 4. 3 Pillars of Pension System
  5. 5. Scenario of Pension in India <ul><li>The main objective of any social security system is the provision of a socially adequate and equitable retirement protection system on a sustainable basis. </li></ul><ul><li>The Current Regulator : Pension Fund Regulatory and Development Authority </li></ul>
  6. 6. Statistics <ul><li>India has nearly eighty million elderly people, which is one eighth of world’s elderly population. </li></ul><ul><li>This segment of population is growing at a rate of 3.8% per annum as against a rate of growth of 1.8% for the overall population. </li></ul><ul><li>A vast majority of this population is not covered by any formal old age income scheme and are dependent on their earnings and transfer from their children or other family members. </li></ul>
  7. 7. Scenario of Pension in India <ul><li>Pensions in India can be divided into three categories </li></ul><ul><ul><li>Government pensions </li></ul></ul><ul><ul><li>Schemes that come under an Act </li></ul></ul><ul><ul><li>Voluntary pensions </li></ul></ul>
  8. 8. Government Pensions <ul><li>The Government amended the regulations to put in place the New Pension System. </li></ul><ul><li>The old scheme continues for the existing employees (i.e. those who joined service prior to January 1, 2004). </li></ul><ul><ul><li>Central government pensions </li></ul></ul><ul><ul><ul><li>Civil servants pensions </li></ul></ul></ul><ul><ul><ul><li>Defence </li></ul></ul></ul><ul><ul><ul><li>Railways </li></ul></ul></ul><ul><ul><ul><li>Posts </li></ul></ul></ul><ul><ul><li>State government pensions </li></ul></ul>
  9. 9. Pensions under an Act <ul><li>Acts for pensions in India </li></ul><ul><ul><li>Pensions under the EPF&MP Act 1952 </li></ul></ul><ul><ul><ul><li>Employees Provident Fund </li></ul></ul></ul><ul><ul><ul><li>Employees Pension Scheme </li></ul></ul></ul><ul><ul><ul><li>Employees Deposit Linked Insurance Scheme </li></ul></ul></ul><ul><ul><li>Two other Acts as well. </li></ul></ul>
  10. 10. Voluntary pensions
  11. 11. Other Arrangements for Informal Sector <ul><li>Senior Citizens Saving Scheme </li></ul><ul><li>NOAPS National Old Age Pension Scheme </li></ul><ul><li>Public Provident Fund </li></ul>
  12. 12. EPF <ul><li>Establishments employing 20 or more. </li></ul><ul><li>Co-operative Societies, employing 50 or more </li></ul><ul><li>A stipulated amount (currently 12%) is deducted from the employee's salary and contributed towards the fund. This amount is decided by the government. </li></ul>
  13. 13. EPF <ul><li>Available to salaried employees. </li></ul><ul><li>Tax-qualified </li></ul><ul><li>Contribution retirement benefit plan </li></ul><ul><li>Equal contribution made by the employer and the employee </li></ul><ul><li>At the specified rate </li></ul><ul><li>Payable in lump sum on retirement. </li></ul>
  14. 14. EPF <ul><li>8.5% per annum (Current) </li></ul><ul><li>Eligible for deduction under the Rs 1,00,000 limit of Section 80C </li></ul><ul><li>No tax on maturity. (After 5 Years) </li></ul>
  15. 15. PPF <ul><li>Established by the central government </li></ul><ul><li>The minimum amount to be deposited in this account is Rs 500 per year. </li></ul><ul><li>The maximum amount you can deposit every year is Rs 70,000. </li></ul><ul><li>8% per Annum (Current) </li></ul><ul><li>Accumulated sum is repayable after 15 years. </li></ul><ul><li>Eligible for deduction under the Rs 1,00,000 limit of Section 80C </li></ul><ul><li>No tax on maturity.  </li></ul>
  16. 16. Limitations of Existing System <ul><li>Heavy financial burden on the Government </li></ul><ul><li>Limited coverage </li></ul><ul><li>Fragmented regulatory framework </li></ul><ul><li>Lack of individual choice and portability </li></ul><ul><li>Lack of uniform standards </li></ul><ul><li>High incidence of administrative cost </li></ul><ul><li>L ow real rate of returns </li></ul><ul><li>U nsustainable. </li></ul><ul><li>Non-sustainability of the existing pension system is accentuated by the sharp increase in financial burden on the Government and the other employers on account of pension liabilities. </li></ul>
  17. 17. Statistics <ul><li>Only about 12 per cent of the working population in India is covered by some form of retirement benefit scheme. </li></ul>
  18. 18. New Pension System <ul><li>Introduced in April 2004, to cover all entrants in government service. </li></ul><ul><li>After six years of its launch, only 12 States have executed the NPS scheme, eight have merely entered into an agreement with the NPS Trust. </li></ul><ul><li>NPS is now available to every citizen from 1st April, 2009 on a voluntary basis. </li></ul><ul><ul><li>On May 1, 2009, the Pension Fund and Regulatory Development Authority (PFRDA) had thrown open the scheme to all citizens of India. </li></ul></ul><ul><li>Annual fund management charge of 0.0009% !!! </li></ul><ul><ul><li>Extremely low when compared to a pension plan offered by an insurance company charges a fund management charge of 0.75-1.75% of the value of the investment every year. </li></ul></ul>
  19. 19. NPS <ul><li>National Securities Depository Limited (NSDL) has been appointed as the CRA. </li></ul><ul><li>CRA : Central Record Keeping and Accountancy Agency </li></ul>
  20. 20. NPS <ul><li>Indian citizen between 18 and 55 years. </li></ul><ul><li>Based on Permanent Retirement Account Number (PRAN), </li></ul><ul><li>No investment ceiling. </li></ul><ul><li>Minimum investment limit has been fixed at Rs 500 a month or Rs 6,000 annually. </li></ul><ul><li>Subscribers are required to contribute at least once a quarter </li></ul><ul><li>Investments not guaranteed </li></ul><ul><li>Choice in the investment mix </li></ul><ul><ul><li>Equity or E (high risk but high returns), </li></ul></ul><ul><ul><li>Fixed income instruments or C (that come with medium risk and returns) </li></ul></ul><ul><ul><li>Pure fixed investment products or G (which offer low returns but have very low risks associated with them). </li></ul></ul>
  21. 21. NPS <ul><li>Equity investment is capped at 50 per cent. </li></ul><ul><li>Retirement age fixed at 60 years. </li></ul><ul><li>At 60, use at least 40 per cent of your accumulated savings to buy a life annuity from an insurance company. </li></ul><ul><li>A phased withdrawal is also allowed but the lump sum benefit has to be availed before turning 70. </li></ul><ul><li>In the current Budget, the Central government had announced that it would contribute Rs1,000 towards each New Pension Scheme account opened this year for the next 3 years. </li></ul>
  22. 22. NPS <ul><li>The investment is covered under section 80CCD of the Income Tax Act </li></ul><ul><li>Tax will be levied for withdrawing the money (earned). </li></ul><ul><li>One can avoid paying tax by transferring the entire corpus to the annuity service provider. </li></ul><ul><li>PFRDA has approached the government to treat investment in NPS on a par with instruments like Employees Provident Fund and Public Provident Fund, for which no tax is levied at the investment, accumulation or withdrawal stage. </li></ul>
  23. 23. Thank You ! <ul><li> </li></ul><ul><li>Any Questions ? </li></ul>