Actuarial Valuation of Public Sector Enterprises

Transcript:Actuarial Valuation of Public Sector Enterprises:
Actuarial Valuation of Public Sector Enterprises Speakers: Sh. A D Gupta Consulting Actuary Chairperson, Advisory Group on PEBSS Khushwant Pahwa Founder and Consulting Actuary, KP Actuaries and Consultants (KPAC) Secretary, Advisory Group on PEBSS Data Support: Sh. D.K. Pandit Consulting Actuary, KA Pandit (Actuaries and Consultants) Member, Advisory Group on PEBSS Agenda Introduction to the issue Identifying the problem Deliberating potential solutions Plan Assets Concluding remarks Setting the context… Not a new issue. Not a small issue. Not an issue likely to go away soon. Carries reputation risk? Not immediate solution Perhaps an opportunity? Not a new issue Not a new topic of discussion. Has been discussed in many forums (some mentioned below), Advisory Group and a topic of discussion in drafting of Actuarial Practice Standards. Not a new issue (Extracts of IBA 2013 circular) Certain extracts of IBA Circular 2013 (Guidance to Banks): Regulatory displeasure over the lack of a planned approach to superannuation funding by many of the banks was expressed by the top management of RBI in their interactions with senior bankers under the aegis of IBA. RBI view was that any additional funding requirement on account of bipartite settlements should be anticipated and provided for without having to seek amortization facility as wage revision takes place every five years and a fair estimate could be made based on past trends as far as likely upward revision is concerned. Similarly, RBI felt that banks do not spread the yearly superannuation funding requirements evenly across the four quarters. Ballooned provisioning in the fourth quarter attracts criticisms from analysts and market watchers. Salary revision takes place on the basis of bipartite negotiations every five years. Possible future increases in the salary (basic plus DA) during the average remaining service of the employees will be reflected in the superannuation pay and hence need to be factored in while determining the SER. Banks may factor in this aspect appropriately in the calculations in consultation with their actuaries. Salary Escalation rate (SER) of 5-5.50% without taking into account future wage revisions could be considered reasonable. The SER would need to be adjusted substantially upwards to take into account future wage revisions. Not a small issue Despite IBA circular, impact of wage revisions / agreements not considered in valuations: Total actuarially valued liabilities for PSU banks may be to the tune of Rs. 150,000 to Rs. 2,00,000 crores. If salary growth rate assumption