State of Retirement

Benefits in India 2021-22

Executive Summary

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1 State of Retirement Benefits in India Survey 2021-22
About the
Survey

Regulatory changes and labour reforms are likely to keep employers Break-up of organisations by fund size
highly engaged in managing employee benefits. Containing cost,
managing risk, and ensuring sustainability and compliance will be top 14%
priorities for employers.
29%
WTW recently conducted the annual State of Retirement Benefits
in India Survey to understand the issues that influence employers’
retirement strategy, how they manage these benefits, and how the 26%
Less than ₹25 crore
market is reacting to various regulatory changes, as employers try to ₹ 25-99 crore
balance financial viability with the retirement needs of employees. 31% ₹ 100-499 crore
₹ 500+ crore
Figure 1: Respondent profile

Break-up of organisations by number of employees Break-up of organisations by industry

Manufacturing 30%
IT and Telecom 28%

19% `` Financial Services 14%

13%
21%
` Healthcare 8%
74 Professional & Business Services 7%
Participants
13% Others 14%
Fewer than 500
500 to 999
35% 1,000 to 4,999
5,000 to 9,999 Break-up of organisations by annual revenue
10,000+ 33%
24%
21%
14%
9%

Note: “Don’t know” and “Not applicable” have been excluded Less than ₹250-499 ₹500-999 ₹1,000-2,499 ₹2,500
Source: State of Retirement Benefits in India Survey 2021-22 ₹250 crore crore crore crore crore+

2 State of Retirement Benefits in India Survey 2021-22

Retirement Strategy

Regulatory complexity continues to be one aspects affecting retirement benefits which is a

of the biggest issues that impact retirement
benefits.
Overall legislative landscape continues to be complex and
challenging for employers / trustees. Moreover, regulatory
changes expected as part of the new labour codes, are
likely to not only alter the legislative landscape but also
increase the cost of providing retirement benefits in India.
Unlike previous years, Employee Experience
has emerged as one of the most important
welcome change.
In addition to offering more choice to employees, the way in which
benefits are being administered is becoming important – employers
are becoming increasingly sensitive to the employee needs.
Investment complexity has moved down in the
list of issues influencing retirement benefits.
With some major bond defaults in recent years, most companies
and trusts have reviewed their investment strategy in the last 1-2
years. While the issue of bond defaults may have been temporarily
addressed, it is important that companies continue to conduct
periodic review of their investments.

Figure 2: Top issues influencing organisations’ retirement/long-term strategy

Employee experience / complaints 49%

Regulatory complexity 45%
Harmonisation of benefits across business
units 33%

Administrative complexity 32%

Emphasis on overall trust governance 27%

Digitalisation of benefits 26%

Investment complexity and volatility 25%

Legal risk 23%

Organisation structure changes 16%

Others 1%

Figure 3: Half of organisations have already completed or planned the review in next two years for their retirement/ long-term benefits

Retirement benefits Administrator/vendor Governance Investment policy

design performance processes and performance
(excluding fund (compliance and
managers)
documentation)

Completed in the last two

years 35% 38% 43% 34%

Planned for next two

years 18% 17% 19% 14%

Considering 35% 25% 32% 32%

Neither completed,
planned nor considering 14% 25% 13% 24%

Note: Percentages may not sum 100% due to rounding

Source: State of Retirement Benefits in India Survey 2021-22

3 State of Retirement Benefits in India Survey 2021-22

 Key priorities for employers: Key considerations for employees:
ƒ Regulatory complexity ƒ Better experience


ƒ Greater governance ƒ Flexibility


ƒ Emphasis on de-risking ƒ Retirement readiness


WTW recommendations:
Only 1 in 3 companies have reported to have reviewed their strategy in the past year, and clearly, more needs to be done in terms of review of
various aspects, viz. design, investment, governance and vendor management.

4 State of Retirement Benefits in India Survey 2021-22

Employees’ Provident Fund (EPF)
While companies are unlikely to apply for new PF exemptions, there is a sizeable number of companies that continue to have exempt Provident Funds.
Corpus-wise, some of India’s largest companies have self-managed PF trusts, which makes up approximately 1/3rd of the total PF assets in India.

The largest companies may continue to maintain exemptions, primarily to take advantage of the lower administration cost on a large
salary base. The best managed provident funds do seem to provide a better employee experience than the EPFO-run provident fund for
unexempt establishments. Several funds, (especially those sponsored by very large employers) continue to be well-managed and run by
professionals, and this trend may continue in the future.

Figure 4: Employees’ Provident Fund and self-managed EPF Trust

How is your Provident Fund currently being managed? How strongly do you agree or disagree with the following
statements for your organisation’s self-managed Provident Fund?

EPFO services have significantly improved

Regulator
69% with increased administration efficiency and 73%
managed digital enablement

Market volatility and the current bond

Self-managed 21% defaults / downgrades have been a cause 73%
trust of increasing concern
Regulatory compliance has become a significant 50%
Mix of self-managed
burden for the organisation
and regulator 10%
managed
Managing own provident fund trust is not a 50%
sustainable option in the long-term

A substantial reduction in EPFO administration

charges over the last 5 years has made us consider 23%
changing to a regulator managed model
(Percentages indicate “agree” or “strongly agree”)

Note: Percentages may not sum 100% due to rounding. Results are based on those managing their Employee Provident Fund through self-managed trusts
Source: State of Retirement Benefits in India Survey 2021-22

Over 50% companies feel that managing an exempt PF trust is not a sustainable option in the
long-term.
With improved EPFO services along with the risks and complexity associated with managing an in-house trust, companies (especially
those with small to mid-sized funds) are keen to evaluate a potential surrender back to EPFO. Also, as an exempt PF is classified as a
Defined Benefit Scheme under accounting standards, companies are looking at de-risking the scheme off their balance sheets.

WTW recommendations:
The process of surrender is not straight forward. It is a complex and time-consuming activity, with substantial change management and
employee communication requirements. Companies are advised to conduct a feasibility of maintaining exemption vs surrendering the fund
back to the EPFO. All aspects need to be evaluated, viz, financial impact, investments, compliance, employee experience, etc. before taking
a decision. If a decision to surrender is taken, care should be taken to understand the risks associated with the process, including potential
impact on employees. On the other hand, if a decision is in favour of maintaining the PF Trust, it would be useful to have a governance
exercise undertaken.

5 State of Retirement Benefits in India Survey 2021-22

Superannuation Scheme

While prevalence has reduced, legacy superannuation (SAF) plans continue for over 40%
participants, about half of such plans are open to new entrants.
Superannuation plans continue to exist, in many cases in addition to NPS. Companies may continue to provide more retirement options
for employees, and therefore, may not be keen to completely wind down existing superannuation plans. Moreover, issues with tracing
inactive balances, as well as a dependency on local Income Tax authorities for approvals, have meant that complete wind-up is not always
easy to implement.

Figure 5: Superannuation scheme membership for new entrants

Has your organisation implemented or planning to implement the following changes to its superannuation scheme?

Retained scheme to new 40% 10% 7% 43%

entrants

44%
Close scheme to new
31% 7% 10% 52%
entrants

4%
Wind up scheme 11% 14% 71%

Implemented In progress or planning

of organisations are currently providing
Considering Neither planning nor considering
superannuation scheme to their employees

Source: State of Retirement Benefits in India Survey 2021-22

If your organisation currently has or previously had a DC superannuation scheme, has it ported the superannuation fund to NPS?

25%
companies are in process
or considering to port to
NPS

36% 13% 16% 9% 27%

No, we offer/plan to offer both benefits Already ported In progress Considering Not planning/considering to
(Superannuation and NPS) or planning port to NPS
Note: “Not applicable” has been excluded

Note: Results are based on those who are already providing the Superannuation Scheme. Percentages may not sum 100% due to rounding
Source: State of Retirement Benefits in India Survey 2021-22

6 State of Retirement Benefits in India Survey 2021-22

How strongly do you agree or disagree that the following are/were a significant barrier to porting from the Superannuation scheme to
the NPS?

Complexity of the porting process 56%

Getting the employee communication right 47%

Securing employee consent 47%

(Percentages indicate “agree” or “strongly agree”)

Note: Results are based on those who have already ported, are in process or considering porting of Superannuation scheme to corporate model of NPS
Source: State of Retirement Benefits in India Survey 2021-22

Over half of organisations agree that the complexity of the porting process is a significant barrier
towards porting of Superannuation scheme to the NPS.
Porting of funds from superannuation to NPS have been slow and gradual, with close to 30% not considering porting at all. Complexities
associated with porting, dealing with inactive balances, as well as employee communication are the main barriers companies have been facing.

WTW recommendations:
While it may be administratively cumbersome to provide both superannuation and NPS, many companies may continue to do so. It should
be noted that while winding up a SAF scheme may have challenges (e.g., managing the inactive balances, etc.), transferring to NPS with
superior benefits, does pose as a good option).

Companies should assess their overall retirement benefit strategy – in particular, which plans are to be offered. This should take into account:

ƒ Enabling additional choice to employees

ƒ Tax optimisation

ƒ Administrative complexity

ƒ Target retirement income

7 State of Retirement Benefits in India Survey 2021-22
National Pension System

60% companies are currently providing corporate NPS.

NPS has emerged as the top voluntary retirement benefit in India. Key features, e.g. portability, investment flexibility, and tax benefits have
contributed to more corporates offering this benefit. Most plans are offered as a choice, with employees choosing up to 10% of basic salary as
contribution, which is carved out from their gross earnings.

Figure 6: NPS participation rate

Currently Neither planning

Planning Considering nor considering
providing

60% 13% 11% 16%

What is the NPS participation rate (what percentage of eligible employees have enrolled in NPS)?

26% 26% 28% 15% 5%

Less than 5% 5%-9% 10%-14% 15%-24% 25% or more

Note: “Don’t know” has been excluded

How strongly do you agree with the following statements about the level of take up/participation in NPS?

29%
Exploring strategies to
increase the take up / 61%
participation rate

Satisfied with the level of of organisations are satisfied

50%
take up / participation in
NPS
with NPS participation
(Percentages indicate “agree” or “strongly agree”)
rate but are still exploring
strategies to increase the
Note: Percentages may not sum 100% due to rounding. Results are based on those who have already
completed implementing the corporate model of NPS
participation rate
Source: State of Retirement Benefits in India Survey 2021-22

8 State of Retirement Benefits in India Survey 2021-22

The average NPS take-up rate is 11%.
3 in 5 organisations are exploring strategies to increase their NPS participation rate. As choice is provided, take-up rates continue to be low.
Companies are exploring strategies to increase the take up / participation rate, in particular the use of technology in getting more sign-ups.

Figure 7: NPS contribution flexibility to employees

What best describes the contribution flexibility your organisation has provided to employees in the NPS design?
Employees can contribute…

Up to 10% of basic salary 69%

Only 10% of basic salary 19%

Fixed INR amount (capped at up to 10% of basic salary) 5%

Others 7%

Source: State of Retirement Benefits in India Survey 2021-22

Figure 8: Financial incentives for employees to join NPS

Which of the following financial incentives does your organisation provide for employees to join the NPS?

Payment of Point of Presence (POP) charges at enrolment 38%

Both employers and employees co-contribute (over and

5%
above CTC)

Sponsor the scheme by paying full NPS contributions (over

2%
and above CTC)

Others 5%

None of the above 50%

Note: Results are based on those who have already completed implementing the corporate model of NPS
Source: State of Retirement Benefits in India Survey 2021-22

WTW recommendations:
Companies should explore strategies to improve take-up rates in Corporate NPS – in particular for the younger workforce. More awareness
sessions about retirement readiness, as well as promoting the importance of retirement savings as part of a wider financial wellbeing
initiative can go a long way in improving participation. Some level of financial incentivisation from companies (e.g. co-contribution), which is
currently non-existent, could also be considered.

9 State of Retirement Benefits in India Survey 2021-22

Labour Codes
While industry is divided on inclusion of certain components within the wage definition, most companies seem to be taking a practical view
and excluding components which are variable in nature.

Figure 9: Majority of companies are looking to exclude items such as variable pay and stock options from the definition of wage

How will your organisation treat each of the following when calculating wages?

Has your
organisation taken Exclude from the Include in the Remuneration
any action to definition of wage definition of wage in kind
assess the impact
of the Labour Stock options (and similar plans) 72% 6% 22%
Code?
Car leases 68% 20% 12%

Yes 71%
Variable pay including bonus 77% 23%

Travel concessions 72% 28%

No 29% All travel related components 76% 24%
(clubbed into conveyance allowance)

Source: State of Retirement Benefits in India Survey 2021-22

Figure 10: Organisations’ response to the new definition of wages

How is your organisation planning to change its compensation structure in response to the new definition of wages?

Increase basic pay 31%

No changes to the compensation

structure planned 21%

Increase house rent allowance

(HRA) beyond 50% 17%

Increase conveyance allowance 13%

Others 6%

Not sure 34%

Source: State of Retirement Benefits in India Survey 2021-22

Only 1 in 3 organisations are likely to increase basic salary in response to the new definition of wages. Wherever compensation restructuring
is being done, HRA and conveyance are the two major components that have been increased.

While it may be prudent to increase basic salary, most companies are not very keen to do so immediately, as this will have implications on
employees’ take-home salary. Moreover, increasing basic salary will have a significant impact on voluntary plans, e.g. legacy pension plans,
where benefits are linked to basic salary.

10 State of Retirement Benefits in India Survey 2021-22

Figure 11: Organisations’ response to PF contributions

Half of the organisations are not considering any change in its PF contributions and will maintain status-quo of 12% of basic salary

Contributions to Provident Fund

Continue to contribute Restrict contributions to

Contribute 12% of new Not sure
12% of basic salary as per INR 15,000 per month
wage definition
prevailing regulation

46% 13% 8% 32%

Note: Percentages may not sum 100% due to rounding
Source: State of Retirement Benefits in India Survey 2021-22

Most companies feel that the concept of wage ceiling for EPF contributions may continue to exist post labour codes as well, and therefore
are not keen to contribute on full wage. This is also another reason as to why companies are not keen to increase the basic salary of
employees, wherever possible.

Figure 12: Expected financial impact and changes on gratuity policy

What is the expected financial impact of the changes in the labour    
codes on your gratuity liability and in turn on your organisation's P&L?

Financial Update

40%
Impact on P&L Gratuity Policy We expect a significant impact to P&L and are considering
options to update our gratuity policy to mitigate the impact

We do not expect a significant financial impact on our P&L and will not change
our gratuity policy 28%
We expect a significant impact to P&L, but will not change the gratuity policy 24%
We do not expect a significant financial impact on our P&L,
but will update our gratuity policy 8%
Source: State of Retirement Benefits in India Survey 2021-22

2 in 5 organisations expect a significant impact on P&L, especially due to the new definition of
wage being applicable on gratuity and leave encashment schemes.
In most cases, there is a significant impact on gratuity and leave liabilities. As things stand, the impact on past service will flow through the
P&L account. Many organisations may use the labour code implementation to conduct a more comprehensive review of their leave plans
and use this opportunity to harmonise and align with the various state specific Shops and Establishments Acts.

WTW recommendations:
Further clarity is awaited from the Government, especially around the treatment of various components that will form part of the wage
definition. It is, however, clear that there is likely to be a significant financial impact of the new wage definition, especially on the cost of
retirement and long-term benefits.

Although the date of implementation is not yet announced, it is best to stay prepared and assess the impact of the changes. While the
financial impact cannot be fully eliminated, organisations are advised to look at possible options to mitigate the impact. Compensation
restructuring and updating policies are the two options that have generally helped in mitigating the impact.

11 State of Retirement Benefits in India Survey 2021-22

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