Pension Market in Sri Lanka & trend World-wide
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Transcript of Pension Market in Sri Lanka & trend World-wide
Pension Market in Sri Lanka & trend World-wide
Date : 10 t h December, 2012Niyat i Pandit Ganesh Sudrik
SOCIO ECONOMIC
Population of Sri Lanka in 2012- 20,277,597. 0.30% of the world´s population . Population Increased by 7.9% since 2001. Average annual growth is 0.7% between 2001- 2012.
Thus population is still growing but at a lesser rate.
MOVEMENT IN POPULATION
Decreasing trend in growth rate since the Census of 1953.Decline due to difference in birth and out migration.
DEMOGRAPHIC TRENDS
Population over 60 years old is expected to increase from 12.5% to 16.7% in 2021.
Improvement in mortality. Life expectancy is much higher for age above 60
years as compared to other Asian countries. Increasing number of people above 80+
BIRTH RATE (BIRTHS/1,000 POPULATION)
Source: CIA World Fact book
DEATH RATE (DEATHS/1,000 POPULATION)
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Rate
6.43
6.43
6.45
6.46 6.47 6.49 6.52 6.01 6.07 6.13 6.2 5.92 5.96
Source: CIA World Fact book
POPULATION PYRAMIDIn 1990 In 2010
In 2020 (Estimated) In 2050 (Estimated)
PENSION A regular income paid to a person following
retirement from the service. Paid in instalments Pension systems exist to satisfy two main goals
to tackle poverty in old age by providing a minimum income
to smooth consumption over the life-cycle
PENSION SCENARIO IN SRI LANKA Access to Approved Pension Plan, not more than
10% to 15% of total population There are two major challenges facing the
existing pension system in Sri Lanka: coverage is low, with around 85% to 90% of
older people unable to access a regular pension; and,
even for those who can access a pension, many find that the actual level of the benefit they receive is well below the poverty line.
If Sri Lanka is to be successful in tackling old age poverty, there needs to be a fundamental shift in pension policy.
NOW WHAT?
TYPES OF BENEFIT Defined Benefit Scheme Defined Contribution Scheme Hybrid Scheme
DB WITH DCDefined Benefit Defined Contribution
Pension Easy to Understand and Calculate Pension Difficult to Predict
Easy to maintain if Membership is Large
With Current Technology not difficult to manage large
membershipUnlimited Liability on Provider Limited Liability on Provider
Transfer Values Difficult to Arrive Transfer Value Easy
Volatile Contribution Rates Smooth Outflow for Provider
Sensitive to Economic and Demographic Changes
Less Sensitive to Economic and Demographic Changes
Popular within Receiver Popular within Provider
World Moving from this Scenario Globally Accepted Schemes
FUNDING METHODS OR METHODS OF VALUATION
Numerous methods are available Method can be chosen depending upon the
situation Most Commonly used methods are
Current Unit Method Projected Unit Credit Method Aggregate Method
CURRENT UNIT METHOD
Step 1 : Expected CashFlow considering all decrements Based on Accrued Benefits
Step 2 : Taking PV of all future CashFlowsi.e. Value of past service liability on current earnings
Time Line
Year 1 Year 2 Year 5Year 4Year 3 Year 6…….
Projected Unit Credit Method
Year 1
Step 1 : Escalated Expected CashFlow considering all decrements
Based on Accrued Benefits
Step 2 : Taking PV of all future CashFlowsValue of past service liability on projected earning
Escalated Year
3
Escalated Year
4
Escalated Year
5
Escalated Year
6….
Escalated Year
2
Time Line
AGGREGATE METHOD
PV of Past Service Liability
PV of Future Service Liability
PV Future Service
Contribution
Entry Age
Current Age
NRA
Net Liability =PV Past Service Liability + PV of Future Service Liability
-{Accumulated Corpus + PV Future Service Contribution }
Time Line
Accumulation Phase Payment Phase
PAYMENT OPTIONS
Pay-as-you-go Company Manage Trust Fund
By In-house Management By Purchasing An Annuity from an Approved
Insurance plan
TYPES OF ANNUITY Level annuities Guaranteed annuities Inflation-linked annuities Joint-life or Last-survivor annuities Life + Return of Capital annuities Investment-linked annuities
RISK WITH CURRENT CONDITIONS
IssuesMost probable
reasonsLess accumulation phase &
long payment phaseDue to Retirement age
criteria
Longevity Risk Increase in Life Expectancy
Investment Risk Less deep Market for G. Sec Rates
Low NRR Availability to Only Lump sum benefit
Fall in Birth Rate & Improvement in Death Rate Urbanization
WORLD TREND FOR PENSION MARKET
Market Globally Europe/ UK, DB plans on PAYG, tax burden increasing Minimum Funding Requirement to Fund the scheme now
US 401k Plan, allows individual investment choice, Pension and medical bill to govt is around 26% of GDP
Gulf Countries have DB pension plan Recently Monetary cap has been introduced
India – Recent move to DC from DB, EPS 95 is Hybrid scheme with limited contribution and cap on
pension
WORLD TREND FOR PENSION MARKET
Indian Market Both DB & DC schemes are not new in India Govt., Banks , Nationalized Insurance Companies and
Certain Financial Institutions also Devised Defined Benefit Pension Scheme By Diverting Employer’s PF Contributions
..But have shifted to DC scheme with a cut-off date NPS option is made available to everyone Approved insurance plans are available Tax Advantage for contribution pension plans Benefit in Cash instead benefit in kind
PROFESSIONAL INPUTS ON PENSIONS
ROLE OF AN PENSION ACTUARY Scheme funding Investment Scheme design Managing risk Corporate transactions Individual benefits
REFERENCE
Death Rate & Birth Rate Statistics : www.indexmundi.com; www.statistics.gov.lk
Population Growth : www.nationmaster.com www.actuaries.org.uk/
THANK YOU