The latest abstract to be accepted into my edited collection of case studies on the subject of Technological Development and Workplace Change is: The Growth of LIC Pension Funds, Ltd., by Dr. Bala Krishnamoorthy, NNIMS, Tanesh Bhattacharya, NMIMS, Dhruv Desai, NMIMS and S.C. Sahoo DGM,LIC –PFL.
“You Save, We Secure Your Peaceful Retirement,” LIC Pension Fund Limited, 2010
A pension secures your future while you contribute to the present: “There is a great demand and a felt need for pension funds in India. Look at the burgeoning middle class. Each family has one or two children and when the children move out parents need to take care of themselves only. It is always better to save for one’s old age rather than being dependent on somebody else. The retirement years are like a second innings and it should be trouble and tension free,” according to Manickam, Chief Executive Officer, LIC-PFL (Pension Fund limited).
With economic reforms beginning in the early 90s, the Government of India was keen to introduce saving habits among people and encouraged saving through pension fund schemes, tax incentives to reduce the dependency on the state and sharing the responsibility between employer and the employee to provide for the retirement years. Over the last two decades (1990 -2010), many eminent economists have debated social security and pension reforms, which have taken centre stage as critically important policy issues both in developed and emerging countries. Policymakers and researchers have been searching for an appropriate mechanism to tackle the problems arising from increased longevity and the unfunded Defined Benefit Pension System, which is unsustainable in the long term. With the Success of the Chilean Pension scheme, parallels were drawn for the introduction of a funded and defined contribution pension system which might solve existing problems in India. In a DB or Defined Benefit Pension scheme, the pension amount to the outgoing employee is dependent on the last salary drawn averaged over ten months. The liability would be ever-increasing as years of service accumulate and this amount is funded the employer’s or government’s resources. In a DC or a Defined Contribution scheme, only the contribution or the accumulation is defined (normally a certain percentage of the employee’s current salary is contributed, which is accumulated and earns a certain percentage of yearly returns); based on cumulative total, the pension is then derived at the time of superannuation.
Currently, India has a large, young population with an average age of 26 and it is anticipated that the population profile will age over the next 25-30 years, so that supplying pension products will become a major economic activity. The population of elderly people is anticipated to increase more quickly than the population overall and the rate of pension coverage is currently very low and the existing system of pensions is not viable for central and state governments. It is necessary, therefore, to move to a new system which will provide wider coverage, reduce the government’s burden and provide better returns.
Manikam, CEO of LIC Pension Funds, reviewed the progress of the business unit. Looking at the past performance/trend during the last four years,( 2007- 2011), he had the following issues to review and cast out a plan for the future:
- Considering options that would not only strengthen its operation but would enable the firm to emerge from the shadow of its parent and become a successful standalone entity.
- Determining whether the LIC pension fund is heading for lowered growth with dependence on the NPS Trust rather than its own core strength.
- Will the firm be more than just a marginal player in the market and how should it become better organized?
This case study follows the progress of LIC Pension Funds in the context of the changing Indian environment and the differences that changing pension expectations will have on the way that people work, save and plan for the future. Implications are drawn from the different workplace behaviour patterns that may be expected to emerge.
LIC Pension Fund Annual Report 2010. Source: www.licpensionfund.in.