Transcript FAQs on - Asto Karaikal

FAQs
on
Revision of PRBS
July 7, 2015
FAQs on Revision of PRBS
• How much more pension will I get in the revised
scheme
Everyone will get more pension in the revised scheme because of
the following reasons:
• The existing PRBS is styled as a “self-contributory” scheme. This is
only encouraged and supported by the Management. The revised
scheme will receive additional Direct contribution ( up to 15% of
Basic + DA) from the Management, permitted by the DPE
guidelines. This is part of the Pay Revision package (w.e.f. 2007).
This significant additional contribution will be directly credited into
the individual’s account in the books of the PRBS trust, It will also
accrue interest based on investments made by the trust and will
become payable on retirement / other specified situations
• There is no ceiling of eligible pension in the revised scheme, unlike
the ceiling of 50% of notional pay in the existing PRBS
July 7, 2015
FAQs on Revision of PRBS
• How safe is my money in the revised scheme? What
is the guarantee for my pension benefits?
• In the Defined Contribution model, the pension corpus of each
individual is as safe as CPF. At any given point of time, the assets of
the trust will be equal to the sum of Corpus due (liability) to all the
members of the pension scheme. Investments of the trust are
governed by guidelines of the Government and is audited. Risk of
losing money is almost zero. However, pension is based on the
Balance Corpus in the account of the Beneficiary. The amount of
Pension is not Defined in terms of Pay and hence not guaranteed.
Repeat. Pension in terms of Pay is not guaranteed, but pension
based on Balance Corpus available is safe and assured.
July 7, 2015
FAQs on Revision of PRBS
• Will this revision be applicable retrospectively or
prospectively?
•This revision of pension benefits is planned to be effective from
1.1.2007, the date from which the DPE guidelines (for additional
direct contribution up to 30% of Pay) became applicable
July 7, 2015
FAQs on Revision of PRBS
• Where is the source of money for the additional
pension?
•
•
In the DB model, the additional amount (Difference between eligible
corpus and actual contribution) comes from the contribution of future
retirees and the support extended by management in the form of
grants, enhancement of monetized value etc. There is uncertainty in
this form of support.
In the DC model, the company contributes directly upfront to the
pension corpus of every individual ( up to 15% of Pay as per DPE
guidelines). In addition, individuals also contribute to increase the
available corpus for a higher pension. Table below gives the amount
contributed at four different salary points for the years 2007 – 2013
Sal in 2007
Year-wise additional contribution
Total
2007
2008
2009
2010
2011
2012
2013
24900
45,526
50,118
56,746
66,218
74,370
83,489
95,190
4,71,658
40000
73,134
80,501
91,155
1,06,358
1,19,460
1,34,091
1,52,893
7,57,591
60000
1,09,701
1,20,751
1,36,732
1,59,120
1,79,136
2,01,050
2,29,212
11,36,095
66000
1,20,671
1,32,826
1,50,392
1,75,471
1,97,066
2,21,164
2,52,146
12,49,736
July 7, 2015
FAQs on Revision of PRBS
• How does our Pension scheme compare with the
pension schemes of other PSUs, especially IOC?
•
•
There are several differences between our scheme and the schemes of
other PSUs. IOC has been giving pension at 40% of Pay (Basic + DA)
for a full service of 32 years from beginning (Nov 1987), whereas in
PRBS, pension benefits are worked out on the basis of notional pay,
which is less than actual Pay.
IOC computes pension as 1.25% of pay for each year of service,
whereas we have a more complex formula for computation. Pension
for the discounted RPS is computed with the salary of 1991 with an
accrual rate of 1.21 per year of RS. Pension for the escalated RFS is
computed with the notional salary on DOR, with an accrual rate of 1.6%
per year of RS. The increase in pension pay out with time in the case
of IOC appears to be more linear than in the case of ONGC. This may
be the result of the court cases and forced interventions to moderate
the pay out of pension.
July 7, 2015
FAQs on Revision of PRBS
Monthly Pension example for a middle level executive of IOC and ONGC
with the same Basic Salary
Year (DOR)
Jan-04
Jan-05
Jan-06
Dec-06
Jan-07
Jan-08
Jan-09
IOC
12450
13480
14890
16480
16800
17260
17930
ONGC
(Existing)
4365
4980
5680
6475
10590
12060
13730
ONGC
(Proposed)
4365
4980
5680
6475
26550
27160
29100
The above table represents a computed case with minimum assumptions at
the middle management level (E4/E5). It shows that the Pension pay out from
PRBS of ONGC was much less than the pension pay out from SABF of IOC
till 2006. Further, the pay out in the case of ONGC was stepped up by 43% (in
Corpus) in 2007 by the MOU signed in April 2007. Now, this is further
proposed for a steep increase in 2007
July 7, 2015
FAQs on Revision of PRBS
• IOC has not attempted to step up the pension benefits on the
conversion date ie., 1.1.2007. As a net result, the pension pay out
on both sides of the conversion date is not drastically different.
Proposal of ONGC is to make up for the difference in Pension and
further to step it up to the level of 50% of Basic Pay ( This should
actually be Pay, as ‘Total Pay’ and ‘Basic Pay’ as on 1.1.2007 is the
same)
• In the case of ONGC, there will be a sharp shoot up of benefits
after the conversion date. This happens because of 3 factors
(1)The pension for the RPS is now to be computed based on the
revised salary of 2007 in place of the salary of 1991, (2) Pension for
RFS till 2007 is now to be computed differently, using the revised
pay of 2007 as against the notional pay. ( pre-revised pay was
about 50% more than the notional pay as on 1.1.2007. Revised pay
has an additional fitment benefit of 30%, compensation for 50% DA
merger and an annual increment of 3%) (3)Use of a target pension
rate of 50% of revised Basic as on 1.1.2007
July 7, 2015
FAQs on Revision of PRBS
• Also, the individual contribution in the case of IOC is only 2% and this
is proposed as 3% in the case of ONGC. IOC has worked out the
additional direct contribution (as permitted by DPE guidelines) to be
14.62%, whereas this is proposed as 15% till 31.3.2013 by ONGC.
ONGC has also proposed to retain the additional contribution from
the individual members ( equivalent to the monetized value), thereby
further increasing the individual contribution
• Though the pension planned in the case of ONGC is higher under the
DC model (not guaranteed), there will also be significant higher
‘Individual Contribution’ compared to other PSUs.
• Pension benefits in the case of PRBS as well as similar schemes of
other PSUs will tend to converge in the long run, as the additional
contribution in the DC model begins to dominate.
• Overall, it may not be reasonable to justify our proposal on the basis
of comparison with the pension schemes of IOC or any other PSU. It
should be justified independently, on its own merits
July 7, 2015
FAQs on Revision of PRBS
• Are there significant changes in the way pension benefits will be
computed in the Revised Scheme?
• Yes. In the existing DB model of PRBS, the pension benefits are computed on the
basis of non-contributory Reckonable Past Service till the date of joining PRBS and
the contributory Reckonable Future Service from the date of joining PRBS till DOR.
Pension benefit for the RPS is computed with the salary of 1991/1995, the actual date
of joining PRBS and the Pension Benefit for the RFS is computed based on the
Notional Salary that is escalated by 8% every year since 1995. In this model, the
difference in career growth beyond 16.11.95 does not affect the Pension Benefits.
• In the proposed revision, the Pension Benefit for both the RPS and the RFS will be
computed on the revised salary as on 1.1.2007. This means that (1)Members with
higher RPS will draw more benefits and (2)Members who have had a better career
progression after 16.11.95 will draw more benefits.
• In addition, a new factor based on the balance service as on 1.1.2007 has
been introduced in the form of Discounting. This reduces the benefits from
the existing DB fund considerably to those with a younger age profile, even
though their actual contribution and the length of service may be the same.
July 7, 2015
FAQs on Revision of PRBS
• What is the actual concern of ASTO
with regard to this revision of PRBS ?
•Though the scheme is beneficial overall, there are serious
concerns about the finer details. It has been estimated by
ASTO’s committee on PRBS that the pension that is likely to
be available for future retirees is likely to be only in the range
of 30% and this is dependent on inflation. Higher the inflation,
lesser the pension benefits. When such is the case, it is not
reasonable to plan for 50% pension pay out as on 1.1.2007. For
retirees of 2007 and soon after, the bulk of the funds comes
only from the existing DB fund. The design criteria needs to be
revisited and moderated to about 35% to 40% of Pay, so that
everyone will be able to avail similar pension benefits.
July 7, 2015
FAQs on Revision of PRBS
• Use of ‘Discounting’ in computing the liability of the PRBS trust
to each individual member as on 1.1.2007 has led to a huge
distortion and denial of benefits to a large cross section of
ONGCians in the younger age profile. This will actually translate
into disproportionately reduced pension benefits to all these
members for their service till 1.1.2007
•The proposed changes result in reduced weightage to the actual
service and actual contribution to the pension fund as compared to the
existing scheme. Employees with similar date of recruitment, level,
length of service and contribution to the fund as on 1.1.2007 are likely
to be discriminated heavily based on their ‘Age Profile’ (ie., balance
service as on 1.1.2007).
• Only the broad picture of the proposed changes are being shared and
the justification for the proposed changes is only on the basis of select
examples and comparison with pension schemes of other PSUs. This
non-transparent approach is very risky and not reasonable.
July 7, 2015
FAQs on Revision of PRBS
• The discounting rate used is 9.5% which is above the average returns
earned by the PRBS trust as also the CPF interest rate. This rate is not
likely to be sustained in the long run. It is common knowledge that
Government is making every effort to reign in inflation and in a low
inflation regime, the average rate of return will fall. This means that the
liability of the trust to individual members has been underestimated and
this difference is being made available as additional benefit to members
retiring in 2007 and soon after. The only way to overcome this
uncertainty is to totally do away with the discounting principle.
• When the notional salary or the actual salary of 1.1.2007 is used to
compute the liability for service up to 1.1.2007, the liability should be
actual as on 1.1.2007. The liability of the trust to the individual as on the
date of retirement, even for the service up to 1.1.2007, should be
computed using the salary as on the date of retirement and the service
length up to 1.1.2007
• Minimum assured pension for cases of Death / TPD is planned to be
removed in the proposed scheme. ASTO has desired that this feature
should be retained and the cost can be distributed to all members.
July 7, 2015
FAQs on Revision of PRBS
• Has
ASTO proposed any solution to the Current
Deadlock?
• Yes. There are different alternatives suggested. (1)The best option would be
to drop the Discounting method for computing the liability to members as on
1.1.2007. The % pension as target benefit has to be reworked in this case
(2)The minimum guaranteed benefit from the existing DB fund (liability as on
1.1.2007) should be defined as 10% of actual contribution per year of
Reckonable Service to all members in addition to their actual contribution
and interest earned on this contribution. To explain, this will mean a
minimum guaranteed benefit of 50%, 100%, 150%, 200% etc. of actual
contribution for members who have a RFS of 5, 10, 15, 20 years etc. as on
1.1.2007. This is benchmarked against the estimated benefit of around 1500%
for members retiring in 2007 with RS of 33 years. Accordingly, the % pension
as target benefit can be reworked (3)The minimum assured pension in cases
of Death /TPD should be retained. This could be set as 40% of last drawn pay
and the additional corpus, wherever required, shall be provided by members
through a fair sharing formula. Or, this can be adjusted against the annual
earnings of the trust on its investments before giving credit to the individual
members
July 7, 2015