India faces enormous challenges to provide for its rapidly growing population. While the first pillar is mainly welfare-oriented, its second-pillar pension system is relatively new and underdeveloped, and there is an urgent need to develop attractive plans, especially for low-income workers.
In India, the first pillar pension system covers state employees, and ran originally as a defined benefit scheme. In 2004, however, a defined contribution New Pension System (NPS) was introduced in order to ease the growing pension burden on the state, which continues to pay benefits from tax revenues. The NPS was opened to voluntary private sector subscriptions in 2009.

Occupational pension system
The second pillar comprises mandatory savings programs for employees in companies of 20 employees or more. The programs are either privately or publicly managed, and benefits are based on contributions. The Employees Provident Fund, which is India’s largest defined contribution and publicly managed plan, is an example of this. There is also the Employees Pension Scheme, which is a publicly managed scheme carved out of the EPF that pays a monthly pension to workers after retirement.

The challenge of population growth and the informal sector
Among the biggest challenges in India is the explosive growth of the informal sector, around 90% of the workforce, which is fuelled by India’s burgeoning population. Most of the informal sector is without any funded social security or pension provision at all. Devising a workable and meaningful financial security intervention for this vast section of the population is a huge policy and planning challenge.

Low awareness of need for retirement savings
People in India have a mixed attitude towards the three pillars. While the working class is keen on the benefits paid out by the first and second pillars, many individuals, especially from the younger generation, tend to ignore the need to save or invest for retirement. Attractive packaging and greater awareness could definitely help here.

Developing life insurance market
There is increasing general realization of the importance of life insurance cover to safeguard the family and cover liabilities, thanks to several high-impact public and private awareness programmes. That said, insurance in India is still tax driven. Unit linked plans and non-unit linked plans with an investment component are popular. Pure risk coverages are not as popular due to the absence of maturity benefits.

It is notable that around 30% of life insurance business in India used to be made up of pension products, which were mainly unit linked pension products. However, due to changes to unit linked products that came into effect on September 1, 2010, overall pension business has dropped drastically. Non-unit linked products do continue to sell, but improved, more attractive offerings are needed to wean new customers.

Kotak Life Insurance
As one of the earliest providers of group insurance on the Indian market, Kotak Life has been a member of the Swiss Life Network since 2003. The company offers a wide range of innovative life insurance products for groups and individuals, and has an extensive network of branches in 141 cities across India.

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or contact Mr. Sandeep Shrikhande
Phone: +91 22 6605 7405