Proactive policy interventions by the government are now important to develop a robust pension scheme to avert a social and pension crisis when the current young population ages, a study has suggested.
Titled 'Employee pensions in India-current practices, challenges and prospects', the study was jointly conducted by KPMG in India and the Federation of Indian Chambers of Commerce and Industry (FICCI) and released on Wednesday.
Citing the study a statement issued by KPMG said the key stakeholders -- government, regulators, employees and employers - should engage in a focussed and constructive discussion to explore ways to broaden the pension coverage in India and to build a robust pension system.
Careful and nuanced interventions are required in the tax regime for pension benefits, in reducing the administrative burden on employers and for encouraging additional pension savings.
According to KPMG, as per the survey conducted by it this year, pension should relate to the existing salary levels and must protect against inflation post retirement.
"In terms of tax benefits, it is important to consider higher tax deductions and giving more tax benefits to NPS (National Pension System). The need for clear communication to all the employers/employees on pension schemes and their benefits is also emphasised," the statement said.
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"Increasing life expectancy, combined with the weakening joint family system, makes it imperative for India to craft a comprehensive pension system to avoid old-age poverty and social distress," Parizad Sirwalla, partner and head, global mobility services, tax, KPMG was quoted as saying in the statement.
"The pension system in India should be able to encourage sufficient lifetime pension contributions to ensure a decent standard of living after retirement. Even small changes in contributions and investment returns can make a big difference in final retirement savings, leveraging the power of compounding," she added.
"The FICCI-KPMG white paper provides a comparative analysis of employer pension plans like EPF (Employees Provident Fund), NPS and Superannuation Funds, and lists factors that have a bearing on growth of these plans," Didar Singh, secretary general, FICCI, was quoted in the statement.
The survey also reveals that 91 percent of the surveyed companies are contributing provident fund on full basic salary, while nine per cent contribute on the statutory limit of Rs.15,000.
While a majority of the respondents believe the current plans in place are adequate (56 percent), a significantly large population (44 percent) feels that more can be done to provide for their employees' retirement planning. Some of the other important findings of the survey are as follows:
The system of automatic enrolment of employees under the EPF regime, irrespective of salary, is largely prevalent (done by 89 percent of the respondents).
Twenty two percent of the respondent companies have registered for the NPS. Further, of the total companies not registered for NPS (35 companies out of total respondents of 45), almost half are considering registration for NPS.
Tax benefits for their employees is seen as the primary motivator for NPS registration (52 per cent of the respondents).
Majority of the respondents (70 percent), who have registered/considering registering for NPS, said that only managers and senior level employees are opting for NPS.
Only 36 percent of the respondents have set-up superannuation fund (SAF) for their employees.
Of the respondent companies which have SAF or are considering setting it up, 82 per cent revealed that SAF is not meant for all employees.
There was unanimity among the respondents on the importance of tax benefits for voluntary contributions to PF, NPS and SAF.