Relying on government which has a role to play in the first two pillars of your retirement may not help. It’s important to create self-funded retirement plan to move comfortably into your sunset years, says Sunil Dhawan Probably the fastest growing economy in the world, India doesn’t have a proper old-age pension system in place. In a recent report by Melbourne Mercer Global Pension Index measuring pension systems on the sub-indices of adequacy, sustainability and integrity, India ranks the last among the 25 countries. Several efforts in the recent past including moving away from defined benefit (DB) to defined contribution (DC) through national pension system (NPS) or the social welfare schemes such as Atal pension Yojna, the results doesn’t seem to be encouraging and seems to be moving at slow pace. In India, similar to most other countries, we too have a three-pillar pension system. Under pillar I, pension funding is done by government through several of its social welfare schemes. It’s largely inadequate and doesn’t even each the desired beneficiaries. Under pillar II, there is EPF and EPS schemes to the rescue. As far the EPF is concerned, the average balance was Rs 30,000 as per studies done earlier. Such sum is grossly insufficient for anyone to meet retirement needs. Under EPS, there is provision of pension. Understandably, it’s restricted to salaried employee but again the benefits may not reach to a large portion of employees in unorganised sector. According to EY’s report on Pensions business in India in November 2013, “employment in formal sector still accounts for 29 per cent of the working population, who are covered under pillar two. Consequently, 71 per cent of the population (mainly comprising informal sector employees) does not have a reliable post-retirement support system.” Even in the organised sector, where most of us belong to, the Employees’ Pension Scheme (EPS), takes care of our pension needs. EPS is largely a government subsidised pension scheme that has a huge asset-liability mismatch, relying entirely on taxpayer’s money. Several studies in the past have put the actuarial deficit of EPS at about Rs 50,000 crore. Recent changes in the EPS scheme could have brought down the deficit to around Rs 10,000 crore. From September 1st, 2014, EPS is only for those new members earning less than Rs. 15,000. To know what you will get from EPS, here the formula:" (Pensionable Salary * service period) / 70. The pensionable salary is capped at Rs 15,000 and service period at 35 years. Thus, maximum would be Rs 7,500 per month pension. For most who are contributing before 1st Sept, 2014, it will much less as earlier pensionable salary was capped at Rs 6,500. Pillar II also represents several state government and other trusts having their own pension funds. Most of them fail to provide adequate pension during post-retirement phase. Lastly, it’s the Pillar III and is most crucial to one’s retirement as it represent self-funding. The third pillar is evolving in India but hasn’t taken off yet. There is the NPS being administered by PFRDA and is a DC scheme. Returns are linked to market and the product offers access to debt, equity or a mix of both. Recently, government has allowed additional tax benefit over and above section 80C in NPS but the taxation on maturity i.e. on annuity or the pension still keeps NPS an unattractive retirement option for investors. NPS carries the lowest fund management fees but hasn’t been that popular yet. PPF has always been a popular retirement focussed investment and is currently offering a tax-free return of 8.7 per cent per annum. Considering, its low real return, PPF may not help create wealth over long term. Life insurance companies are allowed to offer pension plans but the product structure had been tweaked by the regulator in order to provide a guaranteed return. Providing a guarantee in a long term instrument carries an actuarial risk of mis-managing asset-liabilities especially in falling interest rate scenario. This one mandate of providing guarantee has almost killed the insurer’s pension business. Very few insurers would be selling pension plans nowadays. This leads to mutual funds industry. There are few retirement focussed retirement schemes in the industry. One of them, reliance retirement fund is the only one that givers option to invest wholly in equities and is focused on retirement. But before you start self-funding your retirement, estimate the requirement. Get to know how much corpus is required and how much you need to save each month towards retirement. Initially, consider your monthly expenses at current costs and then assuming an inflation rate of about 5 percent inflate them for the number of years left for you to retire. This gives you the amount of inflated monthly expenses you would need to survive through your retired years. The reverse calculation comes here. Estimate how much you need to start saving from now till your retirement age to amass a corpus that could provide you the inflated monthly amount. Use retirement calculators on several websites to arrive at the figure. Without exactly knowing the monthly savings required, one should not venture into planning and savings for one’s retirement. If you are starting out early or are in early 30s, your mutual fund portfolio should be heavy on equity funds i.e. about 80 per cent. Aggressive investors can also look to invest 30 per cent of their equity funds portfolio in mid-cap and small-cap funds. Create a separate portfolio for retirement need and start SIP in 3-5 consistently performing mutual funds. Review it after every 3 years and take action. Importantly, start de-risking process by moving funds away from equity to less volatile debt assets when you are at least three years away from your goal. Choosing the right asset class is equally important. Many of us could be investing in low-yielding products. Here’s why investing in equities as compared to debt asset is important in order to create wealth over long term. Let’s assume one invests Rs 5,000 per month for 25-years. The difference in maturity amount is a huge 98 percent, if growth happens at 8 and 12 percent receptively. If pillar I,II proves inadequate, investors need to realize the important of retirement especially in these times when inflation is destroying purchasing power of money and longevity is increasing and create self-funded retirement plan to move into the golden years comfortably. End note: The reform process in pensions sector had started long back in India and is largely based on these three reports submitted to the government - Project OASIS Committee Report, 2000, Pensions Reforms in the Unorganized Sector — IRDA Report, 2001 and Report of the High Level Expert Group on New Pensions System, Government of India; P. Bhattacharya Report, 2002. In spite of in-depth understanding of the India’s need and demographics, MERCER’s report leaves lot to ponder upon and take immediate corrective action. Its high time, NPS gets tax break on annuity and ensures a better tomorrow for us Indians.
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Banking and payments technology firm FIS has introduced Banking on Demand, an innovative, hosted solution that enables small banks, payment banks and microfinance institutions to deliver banking capabilities to their customers without the expense and time associated with building out traditional banking infrastructure.“Technology will be the biggest enabler for new bank entrants to deliver on the mandate they have been given to bring financial access to everyone in India,” said Ramas Venkatachalam, managing director, FIS India and South Asia. “Banking on Demand is another example of FIS’ ongoing commitment to promoting financial inclusion, and we’re excited to offer this innovative solution to help institutions better serve their customers and expand banking access.”Banking on Demand is a preconfigured core banking solution that uses shared technology infrastructure to minimize initial capital expenditures and deliver click rate pricing that matches costs to business growth, thereby empowering new market entrants to quickly address needs of the underserved.Eight of the 10 small finance banks announced recently in India are microfinance companies. When their current base of micro-credit customers become banking customers, these institutions will need to adopt more stringent practices for regulatory compliance. This, in addition to challenges of complex data migration and door-step banking, is easily enabled by Banking on Demand, saving time, money and infrastructure for these institutions.FIS systems are recognised worldwide by bank start-ups and other financial institutions looking to disrupt the traditional financial services mould. From app-only banks and micro ATMs to “e-lobbies,” mobile access and more, FIS innovation is reinventing the way consumers interact with their banks and bringing financial access to more people.(BW Online Bureau)
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Despite the Union government’s push to improve the pension system in the country, Indian retirement system has been ranked last in the Melbourne Mercer Global Pension Index. India's index value fell from 43.5 in 2014 to 40.3 in 2015, primarily because of a recent review conducted by the Economic Intelligence Unit that showed a material reduction in its household savings rate. “The National Pension System (NPS) is gradually gaining popularity in India. Continuing to improve education and communication will help increase coverage of pension arrangements for the working population in the organized sector, particularly popularizing the corporate model of NPS among Indian employers”, said Anil Lobo, India Business Leader for Retirement, Mercer India. He further added that with the introduction of schemes like Atal Pension Yojana (APY) in June, should encourage workers in the unorganized sector to voluntarily save for retirement, thus Improving India’s rank in the index. Denmark has been rated as the country with the best retirement system globally for the fourth consecutive year in 2015, while Australia, Germany, Japan, Singapore and the UK have increased their pension age to offset the increase in life expectancies. Denmark and Netherlands are the only countries to achieve an ‘A’ grade in the history of the index while Singapore has been ranked the highest among Asian countries for a retirement system The Melbourne Mercer Global Pension Index (MMGPI) report 2015 is now in its seventh year, and has measured 25 retirement income systems against more than 40 indicators, under the sub-indices of adequacy, sustainability and integrity. The report covers almost 60% of the global population, and also suggests how governments can provide adequate and sustainable benefits that protect their citizens against longevity risk, ie. the risk of their aging population outliving their savings. This year's MMGPI looked beyond the annual rankings to observe changes over the last seven years and assess which pension systems will continue to deliver and which ones are at risk.
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To protest at North Block during Parliament’s Winter Session, writes Raghu Mohan By the end of this fiscal, bank unions would have fine-tuned their strategy to take on North Block and its high priest, Arun Jaitely, on what they consider to be “no-go zones”. The first flash point -- the privatisation of IDBI Bank -- is well upon us; it’s also a forerunner of what’s in store. Did you know that IDBI Bank staffers held nation-wide protests the week gone by? The bank has about 30,000 plus staffers, but over a lakh from other banks – state-run and private banks – joined in to show solidarity. It was not captured in the media as it was held after office hours and did not affect banking transactions. IDBI Bank staffers (each one of them) are now to write to Jaitley that what’s being sought to be done to the bank is unfair. Silly, you might say. Okay, get this now. Bang during the Winter Session of Parliament, a demonstration is to be held before North Block (the unions are working on a suitable date!). After that, it’s anybody’s guess how it’s going to escalate; and you anyway have an alphabetic soup of unions to deal with. Says S Nagarajan, general secretary of the All India Bank Officers’ Association (AIBOA): “In the larger interest of the industrial development of the nation, the All India IDBI Officers’ Association (AIIDBIOA) and All India Industrial Development Bank Employees’ Association (AIIDBEA) under the banner of United Forum of IDBI Officers and Employees have embarked upon organisational forms of action to ventilate our categorical opposition over the contemplated move of the Government of India to privatise IDBI bank by dilution of its share-holding to below 51 per cent”. It will lead to the inter-twined -- mergers of state-run banks, transfer of Centre’s stake to a Bank Investment Company (BIC), and bank-wise wage settlements. Simply put, from here on, it’s only a matter of time before the powder keg explodes. You can brace for a series of strikes, and long weekends! But before we proceed, let’s get this clear -- there is no way on earth that the Centre can continue to hold 51 per cent stake in state-run banks or what is called in bureaucratese as “public sector banks”. Even without the additional capital pressures due to Basel-III capital norms (which kick in from fiscal 2019), the Centre would have found it difficult to retain its 51 per cent stake in state-run banks given the state of the fisc and the competing demand for funds. Not Just A Blast From The Past…Bank unions contend the move to privatise IDBI Bank – cut the Centre’s stake in it to under 51 per cent – is in violation of the assurance given during the debates on the IDBI (Transfer of Undertaking and Repeal) Bill (2002) in the Lok Sabha on 4th December 2003; it was passed four days later. In the Rajya Sabha (15th December 2003), then finance minister, Jaswant Singh, said: “When IDBI converts into a bank after the approval of Parliament today, it will immediately become subject to banking regulation… and there it is mandatory. Unless that is amended, how can IDBI shareholding be reduced below 51 per cent? You have another matter of detail the unions highlight. IDBI Ltd was set up in 1964 as a development finance institution, but functioned as a department of the Reserve Bank of India (RBI) till 1976; after that it became an undertaking of the Centre (public sector). When it reversed merged into its offspring IDBI Bank (just like ICICI Ltd did into ICICI Bank in December 2001), Mint Road classified it as “other public sector banks” – a brand new category. Banks under this category (there is only IDBI Bank under it as on date) were to receive the same benefits under Section 10(23D) of the Income Tax Act (1961) as was made clear in the Explanatory Circular for Finance (No 2) Act (2009) dated 3rd June 2010. The unions’ stress all this to prove that what applies to other public sector banks (or state-run banks) holds true for IDBI Bank also. Why then the rush to dilute stake to under 51 per cent in IDBI Bank even as the Centre says it will not do so in other banks owned by it? It Is Potent TooIDBI Bank is a test case for all major issues in banking, especially in state-run banks. The call for mergers among these banks, and, in particular, the move on the part of a few of them to offer stock-options will only make matters worse. Bank unions see this as an attempt to dilute their bargaining power. Mergers and new-age banking based on technology will lead to large scale redundancies as it will call for a different kind of staffing; stock-options will render collective bargaining (in which the unions play a key role) to the dustbin of history. Let’s take mergers first. We are sometime away from mergers between state-run banks, but you can get a sense of what’s set to unfold. The new generation, Kotak Mahindra Bank (KMB; set up in 2003) had no union problem, but ever since it took over ING Vysya Bank last year, it’s reared its head. That’s because ING Vysya (an old private sector bank) had one; they have now migrated to KMB. Worse, for the first time after the new private banking licensing policy of 1993, unionisation is all over the place in these banks. On 17th August 2015, AIBOA -- the second largest union of bank officers' -- launched the Private Sector Bank Officer' Forum (PSBOF) in Bengaluru. “The growing concern of the existing workforce is hovering round a host of issues like contractualisation of permanent jobs, compulsory conversion of Scale-III officers under the C2C (cost-to-company) concept, outsourcing of banking functions, discrimination in performance-linked bonuses, and non-recruitment of staff against permanent vacancies”, says S Nagarajan, general secretary-AIBOA; he also looks after PSBOF. It’s reached proportions you could not have imagined. AIBOA has taken up the cause of some two dozen employees at Antwerp Diamond Bank’s operations in India – basically Mumbai. This follows its takeover last September by the Brussels-based KBC Group when it said it would wind down its loan portfolio and activities across the world. KBC decided to do so after it failed to sell ADB to the Shanghai-based Yinren Group. "Given that the sale of ADB to the Yinren Group could not be successfully completed, KBC has decided, in implementation of the agreement made with the European Commission, to run down the loan portfolio and activities of ADB in a gradual and orderly manner," ADB told the world in a release in September 2014. You may say the unions managed to ensure that ADB (read KBC Group) did not down shutters in India by end-December 2014 as threatened happened because its local management had no stomach for a fight with our bank unions. But when was the last time you heard of a union picking up cudgels on behalf of a small European bank, boutique at that? It can only get worse when state-run banks merge when issues more complex than in the case of KMB-ING Vysya Bank merger crop up. Now on to the question of compensation. The State Bank of India’s (SBI) move in July 2015 to seek the Centre’s nod to offer three per cent of its profits to its staffers will be the death knell for the four-decade old Bilateral Wage Settlements. Wages and terms of service in state-run banks have been based on uniformity from the days of The First Bipartite Wage Settlement (October 1966). This “collective bargaining” between unions and the Indian Banks’ Association (IBA) -- a club of predominantly state-run banks – has led to the comical: these bankers fix wages and then crib about poor pay. Now bank unions may say that the Bilateral Wage Settlement is fair; does not discriminate between staffers of different state-run banks, but the truth is all these banks are not of the same standard nor are their financials. Rather uniform wages have acted as a drain on several of the weaker state-run banks. In February 2015, the United Forum of Bank Unions (UBFU) wailed that “IBA is not giving any cognisance to the difficulties that are faced by the employees on account of high rate of inflation, which has eroded the salaries of the employees to a great extent and the wage increases considered in other similar public sector undertakings despite their low profits”. Yet when SBI made public what it intends to do this July, the very same unions had a different, but rather ingenious take -- that all state-run banks should also do the same, but with IBA in the middle of it! Of course, you may reason that union power is on the wane and point to the fact that bank managements did not move a muscle earlier this year when UBFU gave a call for a four-day bank strike (from the 25th to 28th February 2015); or threatened an indefinite strike from 16th March onwards. All that will change in the days ahead. You also get to see strange bedfellows. Bank unions are being strategically sought to be used by private sector banks to recover non-performing assets – the more noise they make, the better for these banks; the bulk of this mess is after all in state-run banks. “This is a nonsensical attitude”, says Vishwas Utagi, general secretary-All India Bank Employees Federation (AIBEA). His point is state-run banks account for 76 per cent of all banking assets, so naturally, they will have more NPAs in absolute terms. “The private sector or India Inc as the media calls it, borrows from state-run banks, takes them for a ride, and now private banks bosses want to use unions to scare them. Wonderful! We also have a government that chastises state-run banks for NPAs, but not private borrowers, yet wants to privatise state-run banks. You think all this is very clever?” asks Utagi. The proposed protest before North Block during the upcoming Winter session of Parliament may see other comers join in. Recall that a week after Jaitley inaugurated a seminar in Mumbai in August on agrarian distress, there came a strike call from a clutch of banks which were set up to service rural India. Nearly 1.25 lakh employees and officers of 56 Regional Rural Banks (RRBs) spread over 20,000 bank branches want to stop their privatisation; they have threatened a two-day strike during the Monsoon Session of Parliament. There was a test-run strike on 30th June 2015 by the United Forum of RRB Unions. Connect the dots -- bank unions are going to play hard ball.
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BankBazaar.com, a leading financial marketplace, awarded the creative mandate to Enormous, after a multi-agency pitch in Mumbai. As part of the scope of engagement, Enormous will work towards further strengthening Bankbazaar.com’s brand positioning as an online financial marketplace offering end-to-end financial services catering to the country’s growing tech-savvy customers. The account will be serviced from Enormous’ Mumbai office.Adhil Shetty, CEO of BankBazaar.com, said, “The e-commerce segment of the country has successfully spearheaded interesting communication campaigns to enable it as a high involvement sector. On the other hand, financial services, being an important aspect of our lives, remains a low involvement category due to complexities in information dissemination. We are delighted to have Enormous partner with us to simplify financial services through unique creative communication campaigns and to offer optimized benefits to our audience.”Established in 2008, BankBazaar.com has been a pioneer and a one-stop provider of hassle-free solutions for all personal finance products including insurance policies, bank loans and credit cards.Vinay Singh, Head – Brand Marketing at Bankbazaar.com, added, “There was an intensive evaluation of agencies and we decided to opt for Enormous due to their strength of understanding our business, focused creative roadmap based on strong audience insights, and clarity of campaign execution.”(BW Online Bureau)
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The card is apt for online shoppers but be aware of the restrictions before you sign up, reports Sunil Dhawan Indian consumers are taking on to online shopping in a big way. And much of the online transactions are happening through credit or debit card. Credit card purchases, both online and offline, have over the years increased. Of late, Indian credit card consumers have also got hooked on the concept of reward points on their paperless card transactions. SBI Card has recently launched a credit card titled SimplyCLICK aimed at the online shoppers by sweetening the reward point offer to them especially on their online purchases. There a joining fees of Rs 499, while annual renewals is also at Rs. 499, which gets reversed if annual spend is Rs 1 lakh. Online bonanza: For this card, SBI has entered into strategic partnership with Amazon India, BookMyShow, Cleartrip, FabFurnish, Food Panda, Lens Kart and Ola Cabs. If you are a frequent visitor to one or more of these sites, the card helps. On purchases on such sites, the user gets 10 times of reward points. On other online spends made through this card, it’s still fine with 5 times of reward points. Overall, the card is aimed at online purchases. Additionally, there will be e-voucher worth Rs.2,000 on annual online spends of Rs. 1 Lakh and e-voucher worth Rs.2,000 on annual online spends of Rs. 2 lakh. There’s a ‘welcome’ e-gift voucher worth Rs 500 from Amazon. Watch-outs: Offline purchases will be dampener. SimplyCLICK SBI Card will be accepted in over 24 million outlets across the globe, including 3,25,000 outlets in India and the card can be used to make payments at any outlet that accepts Visa or MasterCard. However, for every Rs 100 spent, there is 1 reward point. For high fuel purchasers, the card may not be of much help. There’s the 2.5 per cent fuel surcharge waiver for each transaction between Rs.500 & Rs.3000 but it has been capped. The maximum surcharge waiver of Rs.100 per statement cycle, per credit card account will be there. Fees: The interest free credit period is 20-50 days and is similar to other cards and is applicable only if previous months’ outstanding balance is paid. The interest charges is up to 3.35 per cent per month, accounting to 40.2 per cent per annum from the transaction. For online railway ticket, there’s a charge. Railway tickets through irctc.co.in will be 1.8 per cent of transaction amount + service charge, as applicable. The card suits online shoppers especially through the member sites. Also, go through the reward catalogue and evaluate the offers before you sign up.
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Bank of Baroda (BoB) on Monday (19 October) launched Chillr Mobile app that allows user to instantly transfer money to any contact in their phonebook.Bank of Baroda has partnered with with Chillr, an app launched by MobME, a Kochi-based technology firm.Chillr, a first-of-its kind application, is directly linked to the customer’s bank account and can transfer money to any person in India, once he/she downloads the app and registers.K. Venkateswarlu, General Manager, Digital Banking, Bank of Baroda stated, “The app is presently made available on Android platform and will be made available on IOS and Windows platform shortly. Utility bill & Merchant payments on Chillr app will be enabled for BOB customers soon.The sender selects the recipient from his contact list, enters the amount to be transferred and mPIN, and the receiver instantly gets the money in his bank account. Chillr makes the fund transfer easy and hassle-free.(BW Online Bureau)
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All that paperwork for withdrawing your PF money may soon be history. Retirement fund body EPFO is hopeful of launching an online PF withdrawal facility by March end after the Supreme Court extended voluntary use of Aadhaar card to government schemes, including provident fund. The Employees' Provident Fund Organisation with over five crore subscribers has been working on such a facility for online settlement of PF claims within three hours of receiving an application. Once this is operational, subscribers can apply online for PF withdrawal, which will be transferred directly to their bank accounts. "We have written to the Labour Ministry for approvals for starting an online PF withdrawal facility. We are hopeful of launching this by March end after yesterday's Supreme Court ruling," Central Provident Fund Commissioner K K Jalan told PTI. Yesterday, the apex court extended voluntary use of Aadhaar for schemes like MGNREGA, all types of pension schemes and provident fund, PM's Jan Dhan Yojana. At present, subscribers who wish to settle their accounts with the Employees' Provident Fund Organisation (EPFO) are required to apply manually. Jalan said, "We want to launch the PF withdrawal facility and sought certain approvals. But before launching that, we will ensure speedy verification of PF withdrawal cases of those applicants who will mention their Aadhaar in their claims." Elaborating, he said, "During this month, we will start settling all PF withdrawal claims having Aadhaar numbers within three days against the mandated period of 20 days though the claims will be filed manually only." In order to push the online facility for subscribers, EPFO has become the registrar of the Unique Identification Authority of India (UIDAI) for purpose of enrolment. It is also an online authentication user agency for the Authority. However, for the online mechanism to work, at least 40 per cent of Unique (portable PF) Account Numbers (UANs) should be seeded with Aadhaar numbers and bank account details of the subscribers. EPFO has verified or attested 64.67 lakh Aadhaar numbers and 1.9 crore banks accounts for seeding those with UANs. At present, there are 1.99 crore subscribers who have actually activated their UANs. The seeding of Aadhaar with UAN is also required for providing online PF withdrawal claim facility. (PTI)
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