A Pension Index for India

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Value of Notionally Secured Pensions Index

A Pensions Index for India

By V.N.Sreekaran Pillai

Synopsis

There is no literature on developing an index to measure the appropriateness and sufficiency of pensions paid in a country. However, there is one pension-index known as the Melbourne Mercer Global Pension Index, an analysis of which shows that it is complex, sophisticated and comprises of many factors that makes it less appealing. In India’s case some of its foundations are factually incomplete.

This Paper introduces three new concepts, viz.      

(i)      Per Capita Value of Notionally secured Pensions, that covers all defined benefit and defined contribution pensions in the country

(ii)      Modified Per Capita Income, i.e. per capita income from which pension income that is included in it  is removed and

(iii)         Population figure comprising of persons who are eligible to be contributors to and  recipients of pension (instead of mean population of the year)

and develops a Pension Index for India, which is the ratio of per capita value of notionally secured pensions to modified per capita income.

This paper has come up with a truly innovative concept that can make India the first country in the world to implement a Pension Index.

The ideal value of the Pension Index for India is 1, which means per capita value of notionally secured pension is equal to modified per capita income. In reality the Pension Index for India [for the year 2012-13] is 0.05, meaning thereby that for every rupee of pension to be paid we have made a provision of 5 paise only.

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email:pillaivnsreekaran@gmail.com

SK Desai Memorial Award 2014

This year's SK Desai Memorial Award was conferred on V.N.S.Pillai on 23rd August 2014 at Mysore at the Annual Conference of the Insurance Institute of India. The SK Desai Memorial Award is conferred on the author of the best essay / work of research in any aspect of insurance and is open to insurance men of Afro-Asian region. Members of the Insurance Institutes of this region can submit their entries for consideration of the award. The cash award and citation were given away by the Vice Chancellor of Mysore University, Prof. Rangappa in the presence of President of the III shri AK Roy, CMD of GIC Re and Secretary General of the III Shri P.Venugopal. The SK Desai Memorial award is the highest award of the Insurance Institute of India.

The award was conferred on the basis of V.N.S.Pillai's research work, "Value of Notionally Secured Pensions index, A Pension Index for India", which was adjudged as the best entry. 

Group Mediclaim Insurance Cover to LIC employees

This policy provides for medical insurance cover to present and past employees, their spouses and dependent children. It provides for benefits by way of reimbursement of hospital expenses, domiciliary treatment expenses and cash-less treatment facility in case of specified illnesses.

Have you read the policy conditions? If not, please read them.

I give here two comments on the policy conditions:

1. Cash-less treatment facility is available for serious illnesses. It is not always that you require this facility when you are in your headquarters, where people know you and it will be easy to obtain a letter from LIC. You may need it when you are out of head quarters or when you are on travel. On all such occasions the Medical Identity Card issued by the TPA should come to your help. Interestingly no Identity Card is issued by the TPA to members of the scheme. I contacted the TPA recently as if I need cashless facility. I was asked the number of my Medical Identity Card issued by the TPA. When I reported that no card is issued to me by the TPA their customer service executive asked for my SR number to assist me. When I gave my SR number, after verifying from their system, he told me that no data pertaining to me is available in the system.  If this is the case with a person who has been a member of LIC's medical scheme since its inception in 1987, can you be sure that your details are available with them and in case of need you will get 'cashless treatment' facility? Please take up with your office and insist that Identity Cards should be issued to members covered by the medical insurance.

2. Exclusion clauses are incorporated in policies to protect the insurer from adverse situations. But the  clause 4.21 of our Medical insurance policy says "Medical expenses under two policy periods: If a claim spreads over two policy periods  the total benefits will not exceed the sum insured of that policy during which period the insured person was admitted to the hospital...." That means if you are admitted in the hospital on 25th March of a year (and it costs you Rs 1,50,000 for various investigations in the hospital in  March) and discharged on 30th April after a major surgery (it costs you another Rs 1,50,000 in April) the TPA / insurer will give you only Rs 2 lakhs - even though they have collected premium for both the years (e.g.2013-14 and 2014-15) and in each policy year you should get coverage for Rs 2 lakhs. Don't you think such clauses should go? If yes, please take up with LIC through proper channel.

Relevant information on the insurance:

Insurer: New India Assurance Company Ltd
TPA: M/S MEDI ASSIST INDIA PVT LTD
Toll free no. of TPA: 1800-4259-449
Tel.no. of TPA: 080 26537870

Please read the policy conditions. If you need a copy of the policy write to me from your email...vns pillai

GDP - Source materials used in computation of GDP from banking, insurance etc.

SOURCE MATERIAL USED  

Item:                            Sources of data

1. Commercial banks:  Annual Reports/Account.
2. Banking department of RBI: RBI Annual Report.
3. Public sector financial corporations:  Annual Reports.
4. Private non-banking financial companies,: RBI bulletins.
5. Post office savings banks: Budget documents of Department of Post
6. Co-operative credit societies: Statistical statements relating to co-operative movement in India, Vol. I Credit societies (NABARD) and data on income and expenditure of sample co-operative societies obtained directly.        
7. Life Insurance:                                          
i)   Annual Reports and Accounts (LIC);
 ii)  Annual Reports and Accounts of private life       insurance companies;
 iii)  Valuation Reports; and                   iv)  Appropriation Accounts: Postal Services.    
8. General Insurance: Annual Reports and Accounts.
9. Employees State Insurance Corporation Annual Reports:    Appendix 18.2
     
INDICATORS USED IN THE PREPARATIONOF CONSTANT PRICE ESTIMATES
 
 Item    Indicators
 1. Commercial banks,  Estimates of GVA at current prices are deflated by implicit GDP price deflator of commodity producing sectors.
2. Banking Department of RBI, Estimates of GVA at current prices are deflated by implicit GDP price deflator of commercial banks.
3. Post Office Savings bank CPI index.
4. Non- banking financial companies and corporations:Total net receipts deflated by WPI.
5. Co-operative credit societies Average of indices of deposits (deflated) and membership.
 6. Life insurance corporation Average of deflated indices of change in life fund and sum assured.
7. Postal life insurance Average deflated indices of life fund and sum assured.
8. Non-life insurance
Deflated index of premium net of claims and surrenders.
[Reproduced from National Accounts Statistics-Sources & Methods, 2007 CHAPTER 18]     

How Life Insurance is incorporated in the GDP?

GDP & Life Insurance


 Insurance: There are two types of insurance; life and non-life insurance. Life insurance is an activity whereby a policyholder makes regular payments to an insurer in return for which the insurer guarantees to provide the policyholder with an agreed sum, or an annuity, at a given date or earlier if the policyholder dies beforehand. Non-life insurance covers all other risks; accidents, sickness, fire etc. A policy that provides a benefit in the case of death within a given period but in no other circumstances, usually called term insurance, is regarded as non-life insurance because as with other non-life insurance, a claim is payable only if a specified contingency occurs and not otherwise.  

18.24 The output of insurance represents the value of the service provided by insurance corporations in arranging payments of claims and benefits in exchange for the receipts of premiums and contributions. Premiums are usually paid regularly, often at the start of an insurance period, whereas claims fall due later. In the mean time between the payment of premiums being made and the claim being receivable, the sum involved is at the disposal of the insurance corporation to invest and earn income from it. The income thus earned allows the insurance corporations to charge lower premiums than would be the case otherwise. This income comes from the investment of the technical reserves of the insurance corporations, which are assets of the policyholders, and does not include any income from the investment of the insurance corporations’ own funds. The technical reserves of an insurance corporation consist of pre-paid premiums, reserves against outstanding claims, actuarial reserves for life insurance and reserves for with-profit insurance. The output of the insurance activity, which represents the service provided to policyholders, is calculated separately for life and non-life insurance as:  Total actual premiums or contributions earned;  Plus total premium or contribution supplements;  Less claims or benefits due;  Less increases (plus decreases) in actuarial reserves and reserves for with- profit insurance.

18.25  Life insurance: The annual Report and Accounts published by the LIC give necessary details for preparation of the estimates of GVA.   In respect of private life insurance companies, data is available in their annual accounts and these are collected and analysed in the CSO.  

18.26 The GVA by the life insurance business conducted by the Department of Posts is estimated by analysing the 'Appropriation Accounts' brought out by the same department.  Profits and dividends are assumed to be nil. [From National Accounts Statistics - Sources and Methods, 2007, Chapter 18]

Gross Domestic Product etc - 36

Broad compilation procedures

3.19 The general methodology for compiling the estimates of state income
is to first compile the estimates at disaggregated level for each economic
activity and then aggregating them for the whole region/state. The estimates
for commodity producing sectors like agriculture, forestry, fishing, mining &
quarrying, manufacturing, etc. are prepared using the production approach
i.e. measuring the value of output and deducting there from the cost of
material inputs used in the process of production. In the services sectors
(non-public segment) like trade, transport, hotels & restaurants etc., the
estimates are prepared by income approach, specifically, by multiplying the
value added per worker by the number of workers, for the benchmark
estimates and extrapolating these benchmark estimates with suitable
indicators for the annual estimates. The information on value added per
worker is obtained from the relevant Enterprise Surveys conducted for the
purpose. The estimates of workforce are obtained using the results of largescale
sample surveys on employment & unemployment conducted by
National Sample Survey Organisation (NSSO) and decennial population
census carried out in the country by the Office of Registrar General of India
(RGI) and Census Commissioner. In the case of DDP, the estimates for
commodity producing sectors and for public sector, are generally compiled on
the basis of data available at district level. For other private sector segments,
the workforce data is used to allocate state level estimates across the
districts.
3.20 In the preparation of state income estimates, certain activities cut
across state boundaries, and thus their economic contribution cannot be
assigned to any one state directly. Such activities are Railways,
Communications, Banking & Insurance and Central Government
Administration, and are known as the Supra-regional sectors of the economy.
The estimates for these supra regional activities are compiled for the
economy as a whole and allocated to the states on the basis of relevant
indicators. In the case of railways, the indicators are based on the track
length and passenger/goods carried where as in other supra regional sectors
it is the number of employees posted/allocated in the state. Certain activities
like, defence, para military, border security force, high seas drilling etc. are
still kept outside the purview of the state income estimation.

3.21 The estimates of CFC are compiled at the national level using the
estimates of asset wise Net Fixed Capital Stock (NFCS) and average life of
asset, following the procedure of perpetual inventory method (PIM). The
national level estimates of CFC are allocated to states using appropriate
indicators. For example, in the case of agriculture sector, the indicators of (i)
public part, (ii) plantation and (iii) private part are the (a) capital assets and
capital outlay of irrigation departments, (b) area under crops and (c) fixed
assets of cultivator households (from AIDIS), respectively. In the case of
forestry and logging, fishing, mining & quarrying, and construction sectors,
the indicators are the respective sectors’ estimates of GSDP. For electricity,
gas & water supply sector, the indicator is the fixed assets, and for trade,
transport by other means and other services, the indicators are the state-wise
fixed assets of respective services, as available from NSS 57th Round
survey. For the manufacturing (registered) and manufacturing (unregistered)
sectors, the indicators are state-wise fixed assets data available from the ASI
and NSS 56th Round survey, respectively.[Reproduced from CSO Publication]

Gross Domestic Product etc - 35

Per Capita Income

Per Capita State Income is obtained by dividing the NSDP (State Income) by
mid-year projected population of the state and is in contrast to the Per Capita
National Income which is obtained by dividing the Net national Product (NNP)
by the mid-year population of the country. Thus compilation of Per Capita
State Income is based on income originating approach whereas compilation
of Per Capita National Income is based on income accruing approach.
Similarly the per capita district income is obtained by dividing the NDDP
(District Income) by mid-year projected population of the district.
[Reproduced from CSO Publication]