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PENSION ANDRETIREMENT SOLUTIONS
ASSOCHAM WORKSHOP
23rd Feb 2008
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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
PRESENTATION PATH
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To ensure financial independence of yourself and your family against
Increasing cost of post retirement living
Health Care Costs
Increasing life expectancy
RETIREMENT PLANNING - NEED
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NEED FOR PENSION
Present Age 30 yrs
Basic Monthly Salary today (In Rs) 15,000
Basic Monthly Salary after 30 yrs i.e. at retirement age
(assuming effective annual salary growth rate as 5%)
61,742
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%
Not enough to sustain thelifestyle for retirement days
(Pension only 1/4th of lastdrawn salary)
IT MAY FURTHER DETERIORATE WITH FALLING INTEREST RATE
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Need for Pension«.?
Income Expenses
(Rs. in µ000 p.a.)
0
00
00
00
00
00
00
0 0
e
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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 financialsavings.
EXIXSTING PENSION SUPPORT SYSTEM
Rapid increase in
elderly population
expected to touch
113 million by2016, OASIS
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Pension
Expenditure
1995-96
INR Billion
2000-01
INR Billion
CENTRAL
GOVT.
57.33 224.10
STATE
GOVT.78.13 281.97
TOTAL
% of GDP1.39% 2.29%
Source: Indian Pension System by Hatton, Joshi, Fangli
EXTENT OF BURDEN ON GOVT.
Expected to
increase
exponentially in
future
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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.
BREAKDOWN OF TRADITIONAL
SUPPORT SYSTEM
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According to a survey 96% of householdscannot 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¶seducation, other short term goals.
Retirement comes last.
Reliance on traditional and informal methods
such as joint family system
LEVEL OF AWARENESS
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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.
NEED OF FINANCIAL LITERACY
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Retirement Solutions for Employers1. 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
WHAT SBI LIFE OFFERS?
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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 theclient¶s account and becomes part of capital
for the next year.
GROUP PLANS - HIGHLIGHTS
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INDIVIDUAL PLANS - HIGHLIGHTS
Pension FundsSince
April'07
Last 1
year
Since
Inception
1. Pension Equity 39.19% 34.87% 34.60%
2. Pension Growth 50.19% NA 57.70%
3. Pension Bond
(annualized)13.04% NA 12.33%
4. Pension Balanced
(annualized)49.03% NA 48.14%
Individual Pension Plans
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Employee Benefit Schemes
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TYPES:
GRATUITY
SUPERANNUATION
LEAVE ENCASHMENT
GROUP INSURANCE
OTHERS
EMPLOYEE BENEFITS
Employee Benefit Solutions
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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.
HOW BENEFITS ARE MANAGED?
Employee Benefit Solutions
TIME TO ACT IS NOW
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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
WHAT I.T. RULES SAY?
Employee Benefit Solutions
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EB Liabilities have to be valued as per prescribedActuarial Valuation Method and Actuarial assumptions.
Immediate recognition of net benefit liabilities on the
company¶s balance sheet.
Scheme Assets have to be µmarked to market¶.
Market Value of assets to be shown in balance sheet.
WHAT AS 15 SAYS?
Employee Benefit Solutions
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HOW IS IT DONE?
Employee Benefit Solutions
COMPANYBoard decidesto fund benefit
liability
Sets up Trust;Trust deed;
Trustees etc.
Register TrustWith I.T. Deptt.
Evaluate and
select Insurer
Fund by making
contributionsINSURER
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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 atmarket value; therefore fluctuating provisioning
requirement.
ARE YOU SELF-MANAGING EB?
Employee Benefit Solutions
Smoothen your EB Cost by Outsourcing to an Insurer
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Returns? How high?
How Stable?
IS YOUR EB, INSURER MANAGED?
Employee Benefit Solutions
FY
Insurer-
1
Insurer-
4
SBI Life
(Non-Linked)
Peer Group
(Non-Linked)
ULIP with20% Equity
ULIP with30% Equity MAX. MIN. MAX. MIN.
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?
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WHAT DO WE OFFER
Employee Benefit Solutions
TYPE NON-LINKED(Traditional)
LINKED(ULIP)
P.F. X X
GRATUITY ¥ ¥
SUPERANNUATION - DB ¥ X
SUPERANNUATION - DC ¥ X
LEAVE ENCASHMENT ¥ X
ANNUITIES Retail as well as Bulk
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CapAssure Gratuity Scheme
CapAssure Superannuation Scheme
CapAssure Leave Encashment Scheme
ULIP Gratuity fund
Various Annuities/Pensions
SBI LIFE SCHEMES
Employee Benefit Solutions
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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.
CAPASSURE GRATUITY SCHEME
Employee Benefit Solutions
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Bonus allocation in the beginning.
In the traditional as well as ULIP version
A UNIQUE FEATURE
Employee Benefit Solutions
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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%
SBI Life¶s Performance ± Compounded Returns
Employee Benefit Solutions
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SBI LIFE STRENGTH
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%
Employee Benefit Solutions
SBI Life spends the least amount
of policy holders premium
Source: IRDA Annual Report
WE ARE PRUDENT SPENDERS
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OUR FINANCIAL STRENGTH
Company NameNet Capital in Business % (Net
Worth/Share Capital)
SBI Life Insurance 92.19% as on 31st Mar07
Other Major Private Life Insurers 25% to 50%
SBI Life¶s Capital has been supporting
the business and not expenses
Source: IRDA Annual Report
Employee Benefit Solutions
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We maintain substantial Solvency Margin to support our business and protect policy holders.
We do not depend on sovereign guarantees for this
purpose.
OUR FINANCIAL STRENGTH
Employee Benefit Solutions
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³The investment objective of t he Group Retirement
Scheme is Capital Protection wit h Optimal Return tot he policyholders on a Consistent basis wit hin a
reasonable risk framework´
Investment ObjectiveOUR INVESTMENT PHILOSOPHY
Employee Benefit Solutions
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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, Retur
on Investments
OUR INVESTMENT STRATEGY
Employee Benefit Solutions
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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.
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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 tomanage relationship.
A Service level agreement to customize our service TATs.
Employee Benefit Solutions
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SBI Life
With Us,With Us,You¶re SureYou¶re Sure
Employee Benefit Solutions