Retire the Obsolete Retirement Conventions

Retire the obsolete retirement conventions

I didn’t quite realise how fast time flew by and we are System (NPS) will play. Is there a possible shift in already in 2017. Many things have happened. My how people perceive these benefits today compared pop idol George Michael is no more. Wham was with three decades ago? formed in 1982; 35 years have already passed by. I wonder what life will be 35 years from now. Gratuity: As gratuity is available to employees who exit their organization after at least 5 years of By 2050, I will be among the 30 crore Indians service, what relevance does it have to retirement? projected to be over 60 and I don’t want to be None, I think. If an employee does remain with her counted among the 56% employees who feel they employer for 15-20 years and subsequently retires, will be worse-off than their parents in old age (a chances are the company caps the benefit to the finding from Willis Towers Watson’s Global Benefits taxable allowance ceiling (currently Rs10 lakh Attitudes Survey). though Rs20 lakh is proposed). Would it make more sense to increase the eligibility service requirement I wish the retirement scene in the country would for gratuity to 15 years and remove the cap? This change in a few ways. I even wrote a wish list. may be cost neutral in financial obligation for companies. It will also receive more appreciation I wish we could capture and articulate what from those employees who make it to eligibility. ‘retirement’ would mean to people in India 35 years from now. Employees’ Provident Fund (EPF): It bothers me when EPF is called a ‘retirement’ plan. With so many Retirement will mean different things to different withdrawals allowed, even the entire balance in people. The government should broaden its research some circumstances, our EPF is really designed as and gather data about the aspirations; and social, a savings account and not solely a retirement plan. physical and financial needs in old age. Insurance The EPF should focus its effort on being the No.1 company Allianz, in its Retirement Adequacy Income lifestyle savings account for the employed sector, Indicator paper in 2015, ranked India among the providing a social security safety net. Apart from lowest of 49 countries in retirement adequacy when that, EPS95 should be removed. Provide for considering factors such as: pension system preferential tax treatment only for circumstances that coverage, non-pension wealth and housing, and out- meet the criteria of essential life needs. If the of-pocket healthcare spend in old age. benefits are used for that next big holiday or lavish wedding, sorry, there should be no tax benefits. In the UK, special long-term care products (such as health and nursing care) are being developed as part The role of EPF in long-term financial planning of pension and old age income products. I wonder should be communicated. Provident fund plans in whether homecare and related medical services countries such as Singapore or Malaysia have could be included as part of ‘pension’ in India. similar characteristics from which lessons can be learnt. Many salaried employees are seemingly confused about the roles that gratuity, Employees’ Provident Superannuation: Until the NPS emerged, Fund, superannuation and the National Pension superannuation plans were the primary means to

provide employees true retirement benefits through employment. However, developments over the past 8-10 years have altered the relevance and appreciation of these plans significantly. With the exception of employers who want to control what and how, there are a limited number of situations where superannuation plans make sense. This is compounded by the fact that many plans are designed to begin pension annuity payment when an employee leaves service. Pension starting at younger ages has little value; further, as the pensions do not increase over time, they lose to inflation. The role that these plans should play requires serious consideration, else they will soon become applicable only in niche cases. Providers will then not have enough commercial reasons to support these plans.

National Pension System: It is the most recent addition to the suite of retirement offerings in India. I hope it does not try to be everything to everyone in

2017. It has, and should continue to, focus on encouraging disciplined savings for an income in older age.

Withdrawals being allowed from tier 1 accounts concerned me initially. However, as long as the About the Author control measures set out in the current regulations stay as restrictive, it should be fine, as most NPS subscribers won’t have EPF.

Kulin Patel If NPS is to be the universal long-term old age Head – Retirement (South Asia) income savings vehicle, then it’s crucial to tie the tax Willis Towers Watson benefits at the de-accumulation stage with old-age [email protected] needs. This will reduce the risk of lump sum withdrawals. The Pension Fund Regulatory and

Development Authority (PFRDA) has started to consider the long-term de-accumulation phase, and I look forward to this continuing in 2017. About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading Clarifying the purpose of each so-called ‘retirement’ global advisory, broking and solutions company that helps benefit could be the first step towards banishing clients around the world turn risk into a path for growth. misconceptions and potential turf wars between With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We policymakers or regulators. We have about 17 crore design and deliver solutions that manage risk, optimise subscribers in EPF (it can be deduced that those benefits, cultivate talent, and expand the power of capital covered under gratuity would be at least equal to this to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical number) and about 3 lakh NPS (corporate model) intersections between talent, assets and ideas — the subscribers. If we begin now, we won’t have to wait dynamic formula that drives business performance. another 35 years to get it right. Together, we unlock potential. Learn more at willistowerswatson.com.

*First published in The Mint