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Pension Market in Sri Lanka & trend World-wide

Pension Market in Sri Lanka & trend World-wide. Date : 10 th December, 2012 Niyati 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.

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Pension Market in Sri Lanka & trend World-wide

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  1. Pension Market in Sri Lanka & trend World-wide Date : 10th December, 2012NiyatiPanditGaneshSudrik

  2. 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.

  3. Movement in Population Decreasing trend in growth rate since the Census of 1953. Decline due to difference in birth and out migration.

  4. 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+

  5. Birth rate (births/1,000 population) Source: CIA World Fact book

  6. Death rate (deaths/1,000 population) Source: CIA World Fact book

  7. Population Pyramid In 1990 In 2010 In 2050 (Estimated) In 2020 (Estimated)

  8. 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

  9. 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.

  10. Now WHAT?

  11. Types of Benefit • Defined Benefit Scheme • Defined Contribution Scheme • Hybrid Scheme

  12. DB with DC

  13. 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

  14. Current Unit Method Step 1 : Expected CashFlow considering all decrements Based on Accrued Benefits Year 2 Year 5 Year 4 Year 6……. Year 1 Year 3 Time Line Step 2 : Taking PV of all future CashFlowsi.e. Value of past service liability on current earnings

  15. Projected Unit Credit Method Step 1 : Escalated Expected CashFlow considering all decrements Based on Accrued Benefits Escalated Year 3 Escalated Year 4 Escalated Year 5 Escalated Year 2 Escalated Year 6…. Year 1 Time Line Step 2 : Taking PV of all future CashFlowsValue of past service liability on projected earning

  16. Aggregate Method Accumulation Phase Payment Phase PV of Future Service Liability PV of Past Service Liability Time Line PV Future Service Contribution NRA Entry Age Current Age Net Liability =PV Past Service Liability + PV of Future Service Liability-{Accumulated Corpus + PV Future Service Contribution }

  17. Payment Options • Pay-as-you-go • Company Manage Trust Fund • By In-house Management • By Purchasing An Annuity from an Approved Insurance plan

  18. Types of Annuity • Level annuities • Guaranteed annuities • Inflation-linked annuities • Joint-life or Last-survivor annuities • Life + Return of Capital annuities • Investment-linked annuities

  19. Risk with Current Conditions

  20. 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

  21. 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

  22. Professional Inputs on Pensions

  23. Role of an Pension Actuary • Scheme funding • Investment • Scheme design • Managing risk • Corporate transactions • Individual benefits

  24. REFERENCE • Death Rate & Birth Rate Statistics : www.indexmundi.com; www.statistics.gov.lk • Population Growth : www.nationmaster.com • www.actuaries.org.uk/

  25. THANK YOU

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