MRI SCAN OF PF AND PENSION FUND

Dear Mr Ramanathan,

I have gone through your detailed write-up on the Pension Fund  and on the strength of our  case.

The character of LIC employees' Pension Scheme as a funded scheme does not make it more burdensome for LIC.It makes it a systematic and scientific scheme with built in safeguards like determining present value of long term liability of pension to employees and providing for the same through additional contributions as may be required after each annual valuation of the Pension Fund.The scheme being a funded scheme need not detract from the fact that there is a mandatory obligation placed on LIC by the Pension Rules to keep the Fund adequate to meet its liabilities towards the pensioners. The discipline  built into LIC Pension Fund  does not exist in the 'Pay as you go' method followed by the GOI who have to meet the liability out of its revenues. 

Also administering  the payments  of pension through the P & GS dept by buying annuities saves the hassles for LIC to administer the scheme as an employer.The advantage for LIC is two-fold.Once annuities are purchased,LIC as an employer is free from its obligations to the pensioners and the responsibility for managing the Fund is confined to investment of the Fund for the benefit of in-service pension optees. Of course for half yearly revision of DR for pensioners,family pension commencement on death of retiree  and   revision of pension and payment of arrears of difference in pension for  employees retired after the wage revision date , further infusion to Pension Fund and purchase of annuities have to be made by LIC. 

 Any gains made by LIC as an insurer will be reflected in the valuation surplus through the  P & GS dept.If the assumptions on mortality/longevity,rate of interest and expenses etc made in the valuation of the Fund are not favourably borne out by actual experience,LIC as an employer will not be adversely affected,and LIC as an insurer  will have such deviations absorbed  in the performance of the total pension portfolio as a whole.In the process of such smoothing,LIC as an insurer will be well protected  because of its large superannuation portfolio.Another point in favour of the LIC is the closed nature of the Scheme with new entrants in LIC after 31/3/2010 not being covered by the LIC Pension Rules 1995.For this reason the additional contributions required to be made by LIC have  also started to show a declining trend during the last 3 years.A time may come  say,after 2030, when LIC may not be required to make any additional contributions-if  at all only a marginal  contribution-  to the Fund.

The argument that revision of pension will affect bonus to policyholders is nonsensical.If it is true, the entire group of management expenses constituting abut 15% of total premium income will have adverse effect on policyholders' bonus as pension constitutes but a small proportion of management expenses. How LIC manages 85% of its total premium income,  will determine the rewards  given to participating policyholders.The focus for this will have to be  in the areas of profitable product portfolio,minimum policy lapsation,  control on policy surrenders,good quality of business through proper  selection of lives that will minimise early claims,prudent and profitable investment of life fund with optimum safety and yield and control on non-performing assets.These aspects  were brought before DHC but got unfortunately overlooked owing to LIC misleading the Court.

Let us hope that the issues will be examined by the Supreme Court in the proper perspective and a just decision will emerge.

Kind regards.

C H Mahadevan

On Thu, Oct 5, 2017 at 6:18 AM, Ramanathan A S <brasr1717@gmail.com> wrote:

Dear All,

The main reason for the DHC not considering the revision is because there was no proper consideration of all the relevant points relating to 1) Funded Scheme, 2) High Cost of the Scheme, 3)Fear of reduction of Bonus to policyholders. There was no proper assessment of the impact and the pensioners also missed the full impact of tackling the issues. The same issues may crop up before the SC. The attached write up "MRI SCAN OF THE PF FUND & PENSION FUND", I hope might help us to add strength to our arguments.

------------------------------ ------------------------------ -----------------------------

With warm regards

A S Ramanathan 

Ph: +91-9676840504