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?
Individual & Group Plans
Performance Highlights
 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

 NEED FOR PENSION
Present Age 30 yrs

Basic Monthly Salary today (In Rs) 15,000

Not enough to sustain the

lifestyle forBasic Monthly Salary after 30 yrs i.e. at retirement age
retirement days 61,742
(assumingtheffective annual salary growth rate as 5%)
(Pension only 1/4 of last
drawn salary)
PF Savings (12% Employer contr. + 12% Employee contr.) 24%

Accumulated Savings in next 30 yrs (In Rs) 1,305,440

Life Pension (Monthly) amount available at age 60 (In Rs) 15,872

Pension as a percentage of last drawn salary 26%

IT MAY FURTHER DETERIORATE WITH FALLING INTEREST RATE

 Need
Need for
for Pension….?
Pension….?

600

500

400

300

200

100

0
25 35 45 55 60 65 70 72
Age
Income Expenses
(Rs. in ‘000 p.a.)
 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.
Rapid increase in
elderly population
expected to touch
113 million by
2016, OASIS
 EXTENT OF BURDEN ON GOVT.

Pension 1995-96 2000-01

Expenditure INR Billion INR Billion

CENTRAL
57.33 224.10
GOVT.

STATE
78.13 281.97
GOVT.

TOTAL
1.39% 2.29%
% of GDP

Source: Indian Pension System by Hatton, Joshi, Fangli Expected to

increase
exponentially in
future
 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.
 SOME MORE FACTS
o Average Life The Yesteryears
Expectancy Working 60
would increase Retirement Years 67
from 67 years to
75 years in next
20 years Today
Working 55
75
Retirement Years

o Dramatic increase %age Expected

in Living Cost 10 years today increase in costs 10
ago
  costs years later
1 kg of
potato  5.00  12.00 140.00%   29.00
1 liter of
petrol  20.00  49.00 145.00%  120.00 
1 LPG
cylinder 150.00   320.00 113.33%  683.00 
 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
 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.
 WHAT SBI LIFE OFFERS?
 Retirement Solutions for Employers
1. Group Superannuation Plan
 CapAssure Superannuation Plan
2. Group Gratuity Plan
 CapAssure Superannuation Plan
 Golden Gratuity ULIP
3. Group Leave Encashment Plan
 CapAssure Leave Encashment Plan

 Pension Plans for Individuals

1. Unit Plus II Pension
2. Horizon II Pension
 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.
 INDIVIDUAL PLANS - HIGHLIGHTS

 Individual Pension Plans

Since Last 1 Since

Pension Funds 
April'07 year Inception

1. Pension Equity 39.19% 34.87% 34.60%

2. Pension Growth 50.19% NA 57.70%

3. Pension Bond
13.04% NA 12.33%
(annualized)
4. Pension Balanced
49.03% NA 48.14%
(annualized)
Employee Benefit Schemes
 EMPLOYEE BENEFITS

 TYPES:
 GRATUITY
 SUPERANNUATION
 LEAVE ENCASHMENT
 GROUP INSURANCE
 OTHERS

Employee Benefit Solutions

 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

 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

 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

 HOW IS IT DONE?

Board decides Sets up Trust;

COMPANY to fund benefit Trust deed;
liability Trustees etc.

Register Trust
With I.T. Deptt.

Fund by making Evaluate and

INSURER contributions select Insurer

Employee Benefit Solutions

 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

 IS YOUR EB, INSURER MANAGED?

 Returns? Insurer- Insurer- SBI Life Peer Group

 How high? FY
1 4 (Non-Linked) (Non-Linked)
 ULIP with ULIP with
MAX. MIN. MAX. MIN.
 How Stable? 20% Equity 30% Equity 

2004-05 3.34% 6.49% 11.17% 10.17% 8.20% 7.40%

2005-06 13.19% 21.55% 11.80% 10.80% 8.55% 7.90%

2006-07 6.15% 5.42% 10.20% 9.50% 9.30% 8.70%

 Is your Capital Safe?

 How Stable is your Insurer?
 Does it Protect your Capital?

Employee Benefit Solutions

 WHAT DO WE OFFER

NON-LINKED LINKED
TYPE
(Traditional) (ULIP)
P.F. X X

GRATUITY √ √
SUPERANNUATION - DB √ X

SUPERANNUATION - DC √ X

LEAVE ENCASHMENT √ X

ANNUITIES Retail as well as Bulk

Employee Benefit Solutions

 SBI LIFE SCHEMES

 CapAssure Gratuity Scheme

 CapAssure Superannuation Scheme

 CapAssure Leave Encashment Scheme

 ULIP Gratuity fund

 Various Annuities/Pensions

Employee Benefit Solutions

 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

 A UNIQUE FEATURE

 Bonus allocation in the beginning.

In the traditional as well as ULIP version

Employee Benefit Solutions

 SBI Life’s Performance – Compounded Returns

 If you had invested 100 with us 4 years ago, your fund would be
worth 154.82.

Years Cumulated Returns

Year 1 12.50%

Year 2 25.06%

Year 3 39.82%

Year 4 54.08%

Employee Benefit Solutions

 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.

Company Name 2005 – 06

SBI Life Insurance 12.52%
Other Major Private Life Insurers 20% to 25%

Source: IRDA Annual Report

Employee Benefit Solutions

 OUR FINANCIAL STRENGTH

SBI Life’s Capital has been supporting

the business and not expenses

Net Capital in Business % (Net

Company Name
Worth/Share Capital)

SBI Life Insurance 92.19% as on 31st Mar07

Other Major Private Life Insurers 25% to 50%

Source: IRDA Annual Report

Employee Benefit Solutions

 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

 OURObjective
Investment INVESTMENT PHILOSOPHY

“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

 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

 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

 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.
 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

 SBI Life

With Us,
You’re Sure

Employee Benefit Solutions