(Answers to the defence of Funded scheme, High cost & effect on Bonus,)
Lot of confusion seems to have been created around the two Funds raising a phobia of a huge cost for the Pension scheme. This is an attempt to dispel such arguments from misleading the judiciary by using terms such as Funded Scheme against the 'pay as you go' method and Actuarial valuation etc. Let us first examine the PF Scheme that was in operation in the LIC.
PF SCHEME : The Employees Provident Fund Act is the statutory provision under which the employers are obliged to create a scheme for the benefit of the workers. The employees have to contribute a minimum amount and the employer has to also contribute an equal amount to the credit of the employees PF Account. There is a statutory provision in the Income Tax Act under which the employer has the option of creating a Trust into which the deductions made along with the employers contributions have to be remitted. The constitution of the Trust fund has to be approved by the IT authorities. If not, the Employer is obliged to remit the money to the Employees Provident Fund Dept. This prescription is for the protection of the Fund from misuse. The contributions made by the Employer to the PF Trust is allowed as a Management expense; other wise it will be taxed as a profit. Employees in turn get exemption from income tax liability for the contribution made and when they get back the accumulations. What is important to note is that the employers contribution is paid over the period of the service of the employee. The creation of a Trust is mandatory.
PENSION SCHEME : In a pension scheme also, a pension Fund introduced works in the same manner. It has to be approved by the IT Dept initially and such approval renewed from time to time. This is prescribed for the protection of the Pension Fund created. The employer and the employee may contribute for the scheme or the Employer alone may contribute. As in the PF Scheme, the employer and the Employees will get benefits of exemption from I.T for the contributions. Here also it is mandatory to form a Trust Fund for crediting the contributions.
In LIC, the pension scheme was notified on 28-6-1995. However the Pension was in lieu of the CPF contribution. Those who retired earlier to the date of notification and those in service were given the option to join the Pension scheme and it was a conditional offer. The notification detailed the conditions upon which the pension will be paid and the details of the benefits available under the scheme. The one important condition was, those who retired earlier to the notification date had to return the CPF received by them with interest up to a maximum of 12% and other employees, still in service, had to agree to the transfer of their accumulation of CPF to the Pension Trust, because the Pension offer was in lieu of the CPF. The important point to note was that the Govt was not willing to allow a Pension Scheme as a third retirement benefit and the CPF scheme was replaced by a Pension Scheme. The effect of this offer and acceptance was, as though there was no CPF to the optees right from the day of entry into service. The significance of this change to be remembered is that all the incidence of the CPF scheme will affect the Pension Scheme as well, being in lieu of it. The cost effect of CPF had always been accepted as a fait accompli of a wage revision and the increases arising out of the revision is always considered while determining wage revision. Since the Pension Scheme was in lieu of the CPF, with the adoption of the Pension Scheme the retirement benefits in LIC and the Govt became alike.
At the cost of repetition, it is to be remembered that the LIC would have continued to incur the cost of the CPF, if the pension scheme is not notified. The effect of this is that employees will continue to get increased contributions from LIC on their getting increments, promotions and any periodical wage revisions. LIC alone will bear the cost. This cost is a perpetual commitment that LIC has to take into account while considering any wage increase. With the introduction of the Pension Scheme, LIC is contributing the same amount to the Pension Fund, instead of the PF fund. They have to pay the employers' contribution at the same rate, because the percentage of contribution is the same 10% as in the PF Scheme. Their contribution will increase as the employees get increments, promotions and wage revision, and this increase, though would have been anyway incurred in the form of CPF. That is to say there is no increase or decrease to the Employers contribution in the the case pension scheme. The proposition projected is that whether there is a PF scheme or the Pension scheme the LIC's contribution is the same and there is no increase due to the introduction of the Pension scheme.
The myth of the Funded Scheme: As all the pensioners are aware, there was every concerted effort to mislead the DHC to believe that there exists a limit for pension because it is contained in a Fund created for the purpose. It needs double reiteration to mention that the Pension Scheme was a conditional offer that was accepted by the retired. It was drafted and notified by the Govt by virtue of power vested u/s 48 2(cc) of the LIC Act. Being a conditional Offer, the pensioners had no option than to accept the offer or to forgo the offer. Thus eligibility was determined by the acceptance of whatever was offered. Therefore the Govt became the DOMINANT PARTY to the contract to pay pension called, the LIC Employees Pension Rules. One of the conditions was creation of a Pension Fund as per Chapter III and it was a prescription of the dominant party. Further as per the Income Tax Rules, creation of the Pension Fund is also mandatory. Therefore, a mandatory prescription by the dominant party to the Contract cannot be used to prevent a benefit available under the contract, by calling it a Funded Scheme. Comparison of the CGCS Pension Rules is apt, for the reason the Pension rules have the provisions that follow the CGCS Pension Rules, in Rule 55B and 56. LIC Pension Scheme is also modeled on the basis of the CGCS Pension Rules. Both the LIC employees and the Govt servants have only two retirement benefits viz Gratuity and Pension Scheme, with the substitution of the earlier CPF scheme of the LIC employees by the Pension Scheme. The accumulation of the CPF account of all the employees have been transferred to the Pension Fund. Sanction of the Pension was also a condition; acceptance compulsory for eligibility. Govt cannot escape its social liability by creating a separate legal entity under Art.12. Moreover formation of a Pension Fund is a compulsory, mandatory, and a universal prescription.
Why choose the Pension Scheme instead of CPF. It was because of the promise of regular income, which may not be the case if the employees themselves have to manage the investment with connected difficulties including the tendency to spend the money in hand otherwise. There was also the promise of added benefits as per the CGCS Pension Rules (Rule 55B, 56) and family pension. If there are no such incentives there will be no motivation to opt for the scheme. If for example the CPF amount is treated as a Fixed Deposit in a Bank, and interest is paid as a pension, none would have opted for the Pension Scheme. It is the promise to pay a pension with DA linked to the consumer price index and promise of Family pension that has added icing to the scheme, although in the case of early death the total of the CPF paid will be a loss to the family. LIC is also benefited by linking the Pension scheme with the purchase of an annuity scheme (from G & S Dept), because the gains of operation is its profit. It cannot be denied that there is some additional expenses to the LIC but that is limited to only any deficit as per Rule 7(f). All other components of the Pension Fund as per Rule 7 (a) to (e), (g) & (h) are relating to the CPF scheme replaced by the Pension Scheme and nothing new. For the Govt also Pension Funds are a source for funding the infra structure requirement of the Country. Investment from foreign Pension Funds are welcomed by the Govt themselves. Contributions to such an important national requirement cannot be used to deny benefits of a Pension Scheme.
Will there be any loss to the Corporation due to the Pension Scheme?. The LIC Employees pension scheme is just another pension scheme/immediate annuity scheme, which the LIC is marketing, the beneficiaries being its own employees makes no difference. LICs' annuity schemes are NOT DESIGNED TO LOSE. They are designed based on mortality tables in use, yield and expenses of management built into it and annual actuarial valuations are made to see that the schemes work on law of averages and fluctuations are within limits. Needless to say every Pension scheme, other than that of the pension scheme of its own staff, is also subjected Actuarial investigation, as a control over the working of the pension schemes in general. THERE IS NO LOGIC FOR ANY ADDITIONAL EMPHASIS OF THE ANNUAL ACTUARIAL INVESTIGATION ENVISAGED IN RULE 11, as projected by the LIC before the DHC, to mislead and place excessive reliance without any arguments at the bar, because it is routine appraisals of any pension scheme. Still the Pension scheme is better for the employees due to the additional benefits offered. But are such costs so huge as projected; they are not. No proof have been submitted to the DHC in support of the claim, which is ad nauseam repeated as Actuarially investigated. The Actuary's report was not produced, as is the case with any valuation report of the Life fund, which are treated as confidential documents submitted to the IRDA, not in public domain and perhaps a ritual. Such pleas amount to suppressio veri because it is not in public domain. Further the the scheme of pension, i.e the contract for payment of pension is drawn up by the DOMINANT PARTY, the Govt, that would make it go against them. The Govt was well aware of the chances of some extra expenses arising and provision has been made for it in Rule 7 (f). The whole Pension Scheme is a well calculated welfare move, a beneficial scheme for the benefit of the Pensioners, modeled on the CGCS Pension Rules. We are asking for what they have promised, nothing more nor short. That is why the decision of the Hon Bench appears to be solely guided by the statements of the LIC, on the basis of a written statement but without allowing for any contest at the Bar.
What is the actuarial investigation to be done as per Rule 11 and are the result of such investigation a guide to deny the benefits of the scheme ?. Obviously, as discussed earlier the entire cost of the scheme is borne by the LIC, as it is a scheme introduced in lieu of the CPF and the entire cost of the CPF including future increases as a result of incremnts, promotions, wage revision, was also borne by it. Therefore it is a better way of financial management to foresee and provide for contingencies thereby spread the expenses thin over the years. That is the purpose of the Actuarial investigation to decide on the additional funds needed in advance, if the projection of fund reflects a likely shortage. It is only a safety net for the Fund, because the entire funds are not spent towards annuity purchase every year but only yearly premiums are paid for the purchase of annuity policies and the liability for the year ahead is certain, duly covered by the annuity policies, with the probability of only reductions of liabilities due to exits. It has to be remembered that there is constant flow of funds to the extent of 10% of the salaries, with increases corresponding to the rise in the basic pay as a result of increments, promotions and wage revisions. Now with the recent wage revisions, in 2002, 2007 and 2012, the basic salaries have gone up and that have also increased the Fund flow . There will also be higher number of exits because of the increasing population of septuagenarian and octogenarian pensioners, reducing the outgo from the fund. Moreover the Pension fund now is a closed Fund, that also defines the outgo. The anticipated shortfall, as per Rule 11, can only be called as additional cost that was anticipated under the scheme and provided for as above. Moreover, the quinquinneal wage revision comes in handy for re-assessing the impact of the outgo, from the life fund, which will include the pension payments also. There need be no alarm because of the annual investigation. The quinquennial wage revision provides a buffer to adjust the cost. All the above facts go to remove the excuse of the Corporation of high cost as it is only a myth or excuse to deny a benefit under the scheme.
It would appear that in the written statements the figures may be the total pension paid (out flow) without showing the inflow. At the same time it adds, as part of the general annuity portfolio, to the profits of the operation of the scheme, which adds to the financial strength.
The Role of the G & S Dept in the pension Scheme: A doubt arises after reading the paragraph 91 of the judgment of the DHC, as to whether the role of the G & S Dept was at all considered or understood correctly. The DHC is guided by only the version of the LIC when it states:
“The Pension Rules, for a good reason, do not follow the principle of pay as you go. It provides for additional funding on actuarial basis every year. As per the Pension Rules annuities are purchased at the time of retirement or death of an employee. These annuities have a reference to the total amount, which would be payable to the retiree or his family in future. The annuities are subject to actuarial evaluation under Rule 11. Similarly amounts, if required, must be deposited in the Fund on the basis of actuarial evaluation for the in service pension optee employees. These additional funds have to be provided by the Corporation to the Trust “.
It is necessary for the Hon. Bench to remember that it is a statutory requirement under the I.T Act to create a Fund for the CPF and Pension Schemes to spread the cost over the years. It is an accepted and prescribed practice of accounting. In the case of depreciation of fixed Assets also similar yearly provisions are made.
The conclusions of the Hon Bench is based on a misunderstanding of the basis of the Pension Scheme itself. There are two parts for the Scheme. Part 1 is the Annuity part, which is based on the purchase of immediate annuity by the Pension Fund Trust from the G & S Dept of LIC itself, which is offering similar pension schemes to employees of other organizations also. The schemes are based on premium/purchase price as per the standard table of rates used by the Dept over a long period of time. Conversely the Dept is also granting a group gratuity policy for providing Gratuity to employees, as per the payment of Gratuity Act. While pension payment is in instalments for a sum of money paid in one lump sum or over a period, the gratuity is a lump sump payment upon cessation of service. Here for payment of instalment of premium by the employer to the LIC, the employees are paid the gratuity (a lump sum) by the LIC and the Employer is saved of the botheration of administering the scheme. In addition the LIC is guaranteeing payment of the full gratuity amount, that would be payable on the normal retiring of the employee, or even on the earlier death of the employee (an element of life insurance cover). In all the cases of payment of pension or gratuity the table of premium rates is based on life expectancy, yield on investment and expenses of management. There is no calculation of the premium rates every year as presumed. Premium for the scheme is computed taking into account the entry and exits from the scheme.
Determination of the cost of a pension scheme is by simple reading the annual premium from the table of rates of premium for the attained age of every pensioner and multiplied by the pension payable, and this is a part of the routine job of the G & S Dept to quote the premium. Now-a-days it is a simple mathematical function done in minutes with a computer. Increases to pension is taken care of by buying additional annuities for the amounts required. The annuities are purchased every year and the Pension Fund makes the payment to the LIC's G & S Dept. Thus the annuity contract is a normal business transaction for the LIC. Any profit entirely goes to the coffers of the LIC. Of course there will be an actuarial valuation of the G & S Business of the LIC as a whole, to determine whether it is working as per the premium rates prescribed but that is for the whole of the business of the G & S Dept.
The DHC has mentioned in the judgment “as per the Pension Rules annuities are purchased at the time of retirement or death of an employee”. However the Hon Bench cannot be faulted for the simple reason the court cannot be expected to have complete knowledge of the scheme and for this reason only, there is contradiction that “ Similarly amounts, if required, must be deposited in the Fund on the basis of actuarial evaluation for the in service pension optee employees”. The Pension scheme is actually a deferred annuity scheme. It is to be remembered that the Pension Fund consists of the contribution made to the CPF account of every employee throughout their service, that was transferred to the Fund as per the Scheme Rule 7. Such deposit for in-service employees is remitted @ 10% of their basic pay into the Pension Fund and further that in case of demise of the employee while in service, only payment of family pension is involved, the pension fund accumulation thus far relating to the particular employee will be a saving. The premium payable for the family pensioner is again based on the family pension payable which is limited to a maximum of 30% of the normal pension and the premium payable will be for this reduced amount and based on the age at entry of the family pensioner. The entire fund is a composite fund and cannot be identified individually.
Similarly there is no reference to the total amount of annuities payable to the retiree or his family. Thus every year the Pension Fund Trust, not the LIC, will pay an amount of premium, that is arrived on the basis of the age attained by the annuitants and the pension amount, to the G & S Dept. It is the G & S Dept that meets the pension payments. There will be a gain to that Dept due to exits during a financial year, of the annuitant (pensioner or family pensioner). It is note worthy that if an employee dies without any family pensioner, nothing will be payable from the Pension Fund. This is in contrast to the earlier CPF, which is payable to the nominee/heir of the deceased employee. Premium due under every policy, including an annuity policy, is based on table of rates, which in turn are on the basis of mortality rates, anticipated yield on investments and management expenses, & only life annuities are payable. It is further to be appreciated that while the entire amount of every employee collected either by transfer from the CPF of the employees and further monthly contributions @ 10% of basic pay for in-service employees, flows into the Pension Fund Trust constituted under Rule 5, the pension/family pension ceases on the exit of the pensioners. Just as there will a gain in the case of earlier death to the G & S Dept of only the unpaid pension for the year, there will be a saving of all the balances relating to the deceased employees to the Pension Fund. For family pension the liability is limited to 30% of the pension.
The Actuarial investigation contemplated under the Scheme is limited to examining, at the beginning of the year, the amount required to be paid every year to purchase the immediate annuities for the pensioners and any further contributions required as per Rule 11. The entire life insurance and annuity business of the LIC is subjected as a prescribed yearly annual exercise to determine the valuation surplus. The LIC has examined this aspect while considering introduction of the Scheme and the LIC Board Resolution referred to in the Jaipur HC SB Judgment reflects this. The said Board Resolution further supports increasing (revision) of the pension by 11.25% based on the Actuarial calculations submitted to it. If the introduction of a pension Scheme is done with the welfare of the employees in mind, as rightly held as a deferred wage by the National Human Rights Commission, and the LIC was confident of the strength of the Scheme(ibid), there is no surprise or need for any anxiety towards cost, to the claim for periodical revision of the Pension. As per the diktat of the Rule 11, any additional amount to be paid, is nothing but what is done under Rule 7(a) every year in case of any shortfall and that is only a contingency that can be easily corrected by the Actuarial appraisal done at the time of every quinquinneal wage revision. In the light of the opinion of LIC's own Actuaries as to the viability of paying an increased pension @ 11.25%, the plea of high cost, is invalid. The revisions of wages done with effect in 2002, 2007 and 2012 incurring larger outlay on wages has not affected the the valuation surplus. To emphasize, during all the wage revision after the introduction of the Pension Scheme in June 1995, the effect of the Pension payments have been considered together with the future impact and it had been found feasible to agree to a wage revision that was far more liberal than earlier wage revisions. Under the circumstances the doubts on sustainability of additional cost in 2017, is a falsehood to mislead the judiciary. Moreover, the revision is called for to rectify the anomalies arising as a result of discrimination, that needs to be removed to abide by Art.14 of the Constitution.
The total cost of the Pension Fund has been blown up, out of proportion in the LIC's written submission, which appears to have weighed with the Hon Bench of DHC. But the sad part of the conclusions is that the details have not been verified or argued at the bar. There is no disagreement that the Pension Scheme is in lieu of the CPF and that means all the commitment (present as well as future) towards the CPF, is shifted to the Pension Scheme. The CPF contribution is an accumulation of the Employers contribution from the date of employment of every employee made to the PF Trust constituted as required under the IT Rules. There is the further liability for payment, throughout the service of the employee. As and when every employee earns any increment, promotion or when there is a general revision of wages, this contribution increases correspondingly and this is a definite commitment under the law (Employees PF Act). With the introduction of the Pension Scheme in lieu of the CPF, the commitment remains the same and the CPF amounts gets transferred to the Pension Fund. The existing commitment due to increments, promotions and Wage revisions will only continue and it is to be appreciated that such increases are vetted during every wage revision. There may be further increases to the salary scales of the employees and their pension liability cannot be determined at present. The legal liability for increased pension benefits cannot be denied to the pensioners for that reason. Future increases to wage bills will add to the total of the Pension Funds also as it would have done to the CPF. Moreover the Pension Fund is now a closed Fund, upon not being extended to new appointments made. Under the circumstances there is no justification for considering it as a burden whereas it is only an annuity payment secured by the payment of premium, which becomes a normal business operation for the LIC, they having appropriated the premium according to the prevailing Table of rates for Annuities, that is used in the course of business.
A pension Scheme is a normal business practice of an Insurer and the price is fixed by the Insurer for the benefits offered. When a pension scheme is introduced, with a link to secure the pension payments, it is nothing but a contract and is governed by the Indian Contracts Act. Will the Hon Court permit an Insurer to wriggle out of the Annuity Contract to the general public for the reasons discussed (ibid). What would happen to the principles of 'consensus id idem' need not be explained to the SC to reject the ratio of the DHC as an error of judgment. This briefly answers all the contentions as to the cost of the scheme, which is contemplated and drawn by the dominant party to the contract, the Govt. The constitution of the Pension Fund is also mandatory under the I.T Act and therefore the theory of a Funded scheme is pointless, as there can be no estoppel against a statute and further the provisions of the scheme is drawn my the dominant party to the contract, and such a condition cannot be used against the pensioners, other parties to the contract.
The arguments on discrimination have been accepted by the DHC but the revision of the pension scheme has not been. Here also it is only for the simple reason that the mechanism of revision, as done in the LIC, is not adequately explained to be appreciated. A lucid explanation is given for the appreciation of the Hon SC to note that the claim for revision is not a claim in the nature of an OROP and there is no such thing of a rigid rule of fixed pension. While the mechanism of a revision is discussed (infra), a simple example of a revision is the minimum pension referred to even by the DHC, which the Hon Bench opined has to be increased whenever there is a wage revision to those who were earlier drawing such lower pension. The additional benefits provided for under Rule 55B also is a revision as per the CGCS Pension Rules and the Rule 56 states “matters relating to pension and other benefits in respect of which no express provision has been made in these rules shall be governed by the corresponding provisions of contained in the CGCS Pension Rules....”. That revision is to correct some mistakes existing or arising in future during the term of the contract is evident from the examples. In addition our claim for revision is to remove discrimination and for implementing the benefits offered by the Pension Scheme itself.
In the case of a revision of the pension, there is no associated increases as in a revision of the salary structure because a pension benefit is a stand alone benefit. A simple example would explain by comparing the revision of salary and pension. The DA payable for those who retired before 1-11-1993 as per Appendix IV of the Pension Rules is payable for every rise of 4 points over 600 points in the quarterly average of the Price index; while for those who retired after 1-11-1993 it is based on rise of every four points over 1148 points. There is a difference of 548 points representing 137 slabs of DA between the two groups. Similarly there is a difference of 592 points which is equal to 148 slabs between 1740 and 1148 points. The important point to be noted is that the DA payable for the 137 slabs for those who retired after 1-11-1993 is merged with their basic pay at the time revision of wages with effect from 1-11-1993 and this increased basic pay after adding the DA portion is considered for arriving at the new basic pay in the revised pay scales drawn up and to that extent there will be a reduction of the DA drawn before the revision. It is important to note that till this stage, there is no actual increase to the existing pay as the reduced DA is added to the basic pay.
In a general wage revision it is always agreed that there will be an increase of certain percentage to the existing wage and this percentage increase is added to the basic pay calculated after adding the DA portion merged. This merged basic pay arrived is considered for fixing the basic pay as per the new time scale of pay framed, pertaining the price index on the effective of implementation. The new scales would be relating to the index of the year up to which DA is merged and in that process fixation is given at the same stage as it was in the previous scale of pay. The DA payable is based of the new basic pay formed. This is also a revision and our claim is not novel. The DHC has pointed to the discrimination in the rate of DA as between those who retired earlier to 1-11-1993 and later to 1-11-1993 that is directed to be altered. The rationale is the same as that mentioned in the Rule 55B, which is attempted to be removed by the CGCS Pension Rules.
To sum up, the cost factor of revision will not change, as seen from the submissions; the Pension Scheme is in lieu of the CPF and the LIC's liability will remain the same. Further the increase if any is well under control because the pension liability is always considered as part of the total wage bill, before entering into a wage settlement. There need not be any alarm or anxiety, as an Actuarial opinion given to the LIC's own Board supports even an increase of 11.25% in pension.
There is only one additional contribution, as in Rule 11, to be made. But this mole is made to appear as a mountain, to misguide the judiciary. There is a quinquennial wage revision, the last one was in 2012. At that time there would have been an actuarial estimation of the cost of the revision for which the pension liability would have been taken into account. Besides there would have been an evaluation of growth of business and the premium income and only after satisfying the sustainability, the wage increase would have been agreed to. Such an assessment would not have been missed by the Actuaries, as this exercise is nothing before the valuation of the Life Fund of the Corporation. Further such shortfall, if any, found would be the future liability only and the present value of such liability will be considerably small. In fact all the factors for the annual actuarial investigation such as the total number of the pensioners, the total pension amount, the total pension fund, further accruals, the yield on investments etc are to be considered. Only the return of the investments is variable. For the Corporation managing a huge portfolio of thousands of crores of rupees successfully for the last six decades, the pension fund will not pose any problem.
One another phobia raised before the DHC was that of the fear of reduction of the bonus payable to the policy holders. The mortality rate of insured lives have considerably reduced, as compared to the Mortality Tables used for calculation of premium (modified Oriental 1925-35). Along with the the reduction of the mortality rates of the general population itself, with the advancement in the field of Medical science and the invention of new types of antibiotics the survival rates at birth have also increased..
The Hon SC may be pleased to know the Oriental 1925-35 mortality Tables were compiled before the invention of Penicillin (first used in 1942 during the II world war). Further the Medical Science today has seen tremendous advancement to save lives from the brink of death. United Nations Development Programme Key Highlights of 2016 mentions India's Life Expectancy at birth increased from 68 in 2015 to 68.35 years in 2016(69.9 yrs for women and 66.9 yrs for men). The life expectancy in 1947 of the population was a mere 32 yrs. The quinquenneal progress of the Life Expectancy at birth was as per the following chart:
INDIA LIFE EXPECTANCY AT BIRTH
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Year | 1980 1985 1990 1995 2000 2005 2010 2015
Life
Expectancy
Women 53.70 56.03 58.29 61.12 63.49 65.43 67.72 69.86
Men 53.78 55.70 57.61 59.80 61.82 63.66 65.35 66.91
All : 53.87 55.86 57.94 60.44 62.63 64.52 66.51 68.35
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This is according to the general mortality rates of the population but the mortality rates of insured lives will always be lesser. A report in the Business Standard on 9-6-2009 said “The Mortality and Morbidity Investigating Centre, an affiliate of the Institute of Actuaries of India, planned to publish the mortality tables by October”. It also reported that data are currently being collected “though a handful of large players, including the Govt owned Life Insurance Corporation of India, are yet to submit data, said IAI President G N Agarwal”.
The introduction of table top computers have revolutionized the administration and an indication of this is the settlement of claims almost on the due dates. The challenge is fully met with full computerization of all operations giving rise to lowering the management expenses. The average sum insured per policy has increased very much with the general per capita increase in the earnings, that has a telling effect on the expense ratio. There is no place in our country where the investment of the LIC is not seen, with the huge spread for social security, housing etc. The LIC is known for its conservative investments. With lesser mortality experience, lower expenses and better consistent yield on investment, there will not be any difficulty to maintain the bonus to the policy holders.
There is a total misconception that any increase in the expenses has a direct effect on the bonus payable to the policy holders. Only with profit policies are entitled to payment of bonus, for which an extra premium is added to the basic premium payable. Other types of policies are not loaded with the extra premium as there is no liability for bonus payment. The components of surpluses in life insurance are due to 1) reduction in the mortality experienced, that reduces early claims, 2) savings in Management expenses which in the LIC are within the prescribed ratio of 15% of the renewal premiums and 3) higher yield on the investment, which is the highest with prudent investment Management all these years. The bonus additions have been steady. All the three factors contributed by the with profit policies, with extra premium(bonus loading), alone are eligible for bonus. It is to be noted that the savings due to mortality, savings in expenses and higher yield on the investment in respect of the non participating policies as well as Annuity business is not considered for payment of bonus. In other words only the bonus loading determines the eligibility for bonus. One more point of interest is that the bonus declared is not uniform but is differential and depends on the type and term of the policy. In certain type the vesting age is a deferred to a later date from the date of commencement. Further with a full examination of all the factors at the time of every wage revision, there is no room for any doubt over the bonus payment.
To sum up discrimination under Art.14 has been established. The Pension Rules permits revision under Rule 55B & 56. Rule 55B is also a discrimination and hence has to be interpreted harmoniously, in view of the definition of employee as per Rule 2(j) which includes every employee from the lowest class IV cadre to the topmost cadre of Chairman. The Pension Scheme is in substitution of the CPF and the CPF liability includes not only the CPF Funds/contributions but also the future liabilities (ibid). If the Pension Scheme is in lieu of the CPF how can there be different norms of granting extra pension to a limited few of the Pensioners, as per Rule 55B. Pension liability is taken into account every five years along with liability for wages at the time of wage revision. Payment of Bonus to policy holders depends on the mortality factors and the yield on investment. The effect of Management Expenses, which includes salaries and pension is always taken care of during the wage revision and the only variable factors are the mortality, yield on investments and all the factors have been consistently favourable for the last six decades to be worrisome.
A.S.RAMANATHAN
-25917.
Lot of confusion seems to have been created around the two Funds raising a phobia of a huge cost for the Pension scheme. This is an attempt to dispel such arguments from misleading the judiciary by using terms such as Funded Scheme against the 'pay as you go' method and Actuarial valuation etc. Let us first examine the PF Scheme that was in operation in the LIC.
PF SCHEME : The Employees Provident Fund Act is the statutory provision under which the employers are obliged to create a scheme for the benefit of the workers. The employees have to contribute a minimum amount and the employer has to also contribute an equal amount to the credit of the employees PF Account. There is a statutory provision in the Income Tax Act under which the employer has the option of creating a Trust into which the deductions made along with the employers contributions have to be remitted. The constitution of the Trust fund has to be approved by the IT authorities. If not, the Employer is obliged to remit the money to the Employees Provident Fund Dept. This prescription is for the protection of the Fund from misuse. The contributions made by the Employer to the PF Trust is allowed as a Management expense; other wise it will be taxed as a profit. Employees in turn get exemption from income tax liability for the contribution made and when they get back the accumulations. What is important to note is that the employers contribution is paid over the period of the service of the employee. The creation of a Trust is mandatory.
PENSION SCHEME : In a pension scheme also, a pension Fund introduced works in the same manner. It has to be approved by the IT Dept initially and such approval renewed from time to time. This is prescribed for the protection of the Pension Fund created. The employer and the employee may contribute for the scheme or the Employer alone may contribute. As in the PF Scheme, the employer and the Employees will get benefits of exemption from I.T for the contributions. Here also it is mandatory to form a Trust Fund for crediting the contributions.
In LIC, the pension scheme was notified on 28-6-1995. However the Pension was in lieu of the CPF contribution. Those who retired earlier to the date of notification and those in service were given the option to join the Pension scheme and it was a conditional offer. The notification detailed the conditions upon which the pension will be paid and the details of the benefits available under the scheme. The one important condition was, those who retired earlier to the notification date had to return the CPF received by them with interest up to a maximum of 12% and other employees, still in service, had to agree to the transfer of their accumulation of CPF to the Pension Trust, because the Pension offer was in lieu of the CPF. The important point to note was that the Govt was not willing to allow a Pension Scheme as a third retirement benefit and the CPF scheme was replaced by a Pension Scheme. The effect of this offer and acceptance was, as though there was no CPF to the optees right from the day of entry into service. The significance of this change to be remembered is that all the incidence of the CPF scheme will affect the Pension Scheme as well, being in lieu of it. The cost effect of CPF had always been accepted as a fait accompli of a wage revision and the increases arising out of the revision is always considered while determining wage revision. Since the Pension Scheme was in lieu of the CPF, with the adoption of the Pension Scheme the retirement benefits in LIC and the Govt became alike.
At the cost of repetition, it is to be remembered that the LIC would have continued to incur the cost of the CPF, if the pension scheme is not notified. The effect of this is that employees will continue to get increased contributions from LIC on their getting increments, promotions and any periodical wage revisions. LIC alone will bear the cost. This cost is a perpetual commitment that LIC has to take into account while considering any wage increase. With the introduction of the Pension Scheme, LIC is contributing the same amount to the Pension Fund, instead of the PF fund. They have to pay the employers' contribution at the same rate, because the percentage of contribution is the same 10% as in the PF Scheme. Their contribution will increase as the employees get increments, promotions and wage revision, and this increase, though would have been anyway incurred in the form of CPF. That is to say there is no increase or decrease to the Employers contribution in the the case pension scheme. The proposition projected is that whether there is a PF scheme or the Pension scheme the LIC's contribution is the same and there is no increase due to the introduction of the Pension scheme.
The myth of the Funded Scheme: As all the pensioners are aware, there was every concerted effort to mislead the DHC to believe that there exists a limit for pension because it is contained in a Fund created for the purpose. It needs double reiteration to mention that the Pension Scheme was a conditional offer that was accepted by the retired. It was drafted and notified by the Govt by virtue of power vested u/s 48 2(cc) of the LIC Act. Being a conditional Offer, the pensioners had no option than to accept the offer or to forgo the offer. Thus eligibility was determined by the acceptance of whatever was offered. Therefore the Govt became the DOMINANT PARTY to the contract to pay pension called, the LIC Employees Pension Rules. One of the conditions was creation of a Pension Fund as per Chapter III and it was a prescription of the dominant party. Further as per the Income Tax Rules, creation of the Pension Fund is also mandatory. Therefore, a mandatory prescription by the dominant party to the Contract cannot be used to prevent a benefit available under the contract, by calling it a Funded Scheme. Comparison of the CGCS Pension Rules is apt, for the reason the Pension rules have the provisions that follow the CGCS Pension Rules, in Rule 55B and 56. LIC Pension Scheme is also modeled on the basis of the CGCS Pension Rules. Both the LIC employees and the Govt servants have only two retirement benefits viz Gratuity and Pension Scheme, with the substitution of the earlier CPF scheme of the LIC employees by the Pension Scheme. The accumulation of the CPF account of all the employees have been transferred to the Pension Fund. Sanction of the Pension was also a condition; acceptance compulsory for eligibility. Govt cannot escape its social liability by creating a separate legal entity under Art.12. Moreover formation of a Pension Fund is a compulsory, mandatory, and a universal prescription.
Why choose the Pension Scheme instead of CPF. It was because of the promise of regular income, which may not be the case if the employees themselves have to manage the investment with connected difficulties including the tendency to spend the money in hand otherwise. There was also the promise of added benefits as per the CGCS Pension Rules (Rule 55B, 56) and family pension. If there are no such incentives there will be no motivation to opt for the scheme. If for example the CPF amount is treated as a Fixed Deposit in a Bank, and interest is paid as a pension, none would have opted for the Pension Scheme. It is the promise to pay a pension with DA linked to the consumer price index and promise of Family pension that has added icing to the scheme, although in the case of early death the total of the CPF paid will be a loss to the family. LIC is also benefited by linking the Pension scheme with the purchase of an annuity scheme (from G & S Dept), because the gains of operation is its profit. It cannot be denied that there is some additional expenses to the LIC but that is limited to only any deficit as per Rule 7(f). All other components of the Pension Fund as per Rule 7 (a) to (e), (g) & (h) are relating to the CPF scheme replaced by the Pension Scheme and nothing new. For the Govt also Pension Funds are a source for funding the infra structure requirement of the Country. Investment from foreign Pension Funds are welcomed by the Govt themselves. Contributions to such an important national requirement cannot be used to deny benefits of a Pension Scheme.
Will there be any loss to the Corporation due to the Pension Scheme?. The LIC Employees pension scheme is just another pension scheme/immediate annuity scheme, which the LIC is marketing, the beneficiaries being its own employees makes no difference. LICs' annuity schemes are NOT DESIGNED TO LOSE. They are designed based on mortality tables in use, yield and expenses of management built into it and annual actuarial valuations are made to see that the schemes work on law of averages and fluctuations are within limits. Needless to say every Pension scheme, other than that of the pension scheme of its own staff, is also subjected Actuarial investigation, as a control over the working of the pension schemes in general. THERE IS NO LOGIC FOR ANY ADDITIONAL EMPHASIS OF THE ANNUAL ACTUARIAL INVESTIGATION ENVISAGED IN RULE 11, as projected by the LIC before the DHC, to mislead and place excessive reliance without any arguments at the bar, because it is routine appraisals of any pension scheme. Still the Pension scheme is better for the employees due to the additional benefits offered. But are such costs so huge as projected; they are not. No proof have been submitted to the DHC in support of the claim, which is ad nauseam repeated as Actuarially investigated. The Actuary's report was not produced, as is the case with any valuation report of the Life fund, which are treated as confidential documents submitted to the IRDA, not in public domain and perhaps a ritual. Such pleas amount to suppressio veri because it is not in public domain. Further the the scheme of pension, i.e the contract for payment of pension is drawn up by the DOMINANT PARTY, the Govt, that would make it go against them. The Govt was well aware of the chances of some extra expenses arising and provision has been made for it in Rule 7 (f). The whole Pension Scheme is a well calculated welfare move, a beneficial scheme for the benefit of the Pensioners, modeled on the CGCS Pension Rules. We are asking for what they have promised, nothing more nor short. That is why the decision of the Hon Bench appears to be solely guided by the statements of the LIC, on the basis of a written statement but without allowing for any contest at the Bar.
What is the actuarial investigation to be done as per Rule 11 and are the result of such investigation a guide to deny the benefits of the scheme ?. Obviously, as discussed earlier the entire cost of the scheme is borne by the LIC, as it is a scheme introduced in lieu of the CPF and the entire cost of the CPF including future increases as a result of incremnts, promotions, wage revision, was also borne by it. Therefore it is a better way of financial management to foresee and provide for contingencies thereby spread the expenses thin over the years. That is the purpose of the Actuarial investigation to decide on the additional funds needed in advance, if the projection of fund reflects a likely shortage. It is only a safety net for the Fund, because the entire funds are not spent towards annuity purchase every year but only yearly premiums are paid for the purchase of annuity policies and the liability for the year ahead is certain, duly covered by the annuity policies, with the probability of only reductions of liabilities due to exits. It has to be remembered that there is constant flow of funds to the extent of 10% of the salaries, with increases corresponding to the rise in the basic pay as a result of increments, promotions and wage revisions. Now with the recent wage revisions, in 2002, 2007 and 2012, the basic salaries have gone up and that have also increased the Fund flow . There will also be higher number of exits because of the increasing population of septuagenarian and octogenarian pensioners, reducing the outgo from the fund. Moreover the Pension fund now is a closed Fund, that also defines the outgo. The anticipated shortfall, as per Rule 11, can only be called as additional cost that was anticipated under the scheme and provided for as above. Moreover, the quinquinneal wage revision comes in handy for re-assessing the impact of the outgo, from the life fund, which will include the pension payments also. There need be no alarm because of the annual investigation. The quinquennial wage revision provides a buffer to adjust the cost. All the above facts go to remove the excuse of the Corporation of high cost as it is only a myth or excuse to deny a benefit under the scheme.
It would appear that in the written statements the figures may be the total pension paid (out flow) without showing the inflow. At the same time it adds, as part of the general annuity portfolio, to the profits of the operation of the scheme, which adds to the financial strength.
The Role of the G & S Dept in the pension Scheme: A doubt arises after reading the paragraph 91 of the judgment of the DHC, as to whether the role of the G & S Dept was at all considered or understood correctly. The DHC is guided by only the version of the LIC when it states:
“The Pension Rules, for a good reason, do not follow the principle of pay as you go. It provides for additional funding on actuarial basis every year. As per the Pension Rules annuities are purchased at the time of retirement or death of an employee. These annuities have a reference to the total amount, which would be payable to the retiree or his family in future. The annuities are subject to actuarial evaluation under Rule 11. Similarly amounts, if required, must be deposited in the Fund on the basis of actuarial evaluation for the in service pension optee employees. These additional funds have to be provided by the Corporation to the Trust “.
It is necessary for the Hon. Bench to remember that it is a statutory requirement under the I.T Act to create a Fund for the CPF and Pension Schemes to spread the cost over the years. It is an accepted and prescribed practice of accounting. In the case of depreciation of fixed Assets also similar yearly provisions are made.
The conclusions of the Hon Bench is based on a misunderstanding of the basis of the Pension Scheme itself. There are two parts for the Scheme. Part 1 is the Annuity part, which is based on the purchase of immediate annuity by the Pension Fund Trust from the G & S Dept of LIC itself, which is offering similar pension schemes to employees of other organizations also. The schemes are based on premium/purchase price as per the standard table of rates used by the Dept over a long period of time. Conversely the Dept is also granting a group gratuity policy for providing Gratuity to employees, as per the payment of Gratuity Act. While pension payment is in instalments for a sum of money paid in one lump sum or over a period, the gratuity is a lump sump payment upon cessation of service. Here for payment of instalment of premium by the employer to the LIC, the employees are paid the gratuity (a lump sum) by the LIC and the Employer is saved of the botheration of administering the scheme. In addition the LIC is guaranteeing payment of the full gratuity amount, that would be payable on the normal retiring of the employee, or even on the earlier death of the employee (an element of life insurance cover). In all the cases of payment of pension or gratuity the table of premium rates is based on life expectancy, yield on investment and expenses of management. There is no calculation of the premium rates every year as presumed. Premium for the scheme is computed taking into account the entry and exits from the scheme.
Determination of the cost of a pension scheme is by simple reading the annual premium from the table of rates of premium for the attained age of every pensioner and multiplied by the pension payable, and this is a part of the routine job of the G & S Dept to quote the premium. Now-a-days it is a simple mathematical function done in minutes with a computer. Increases to pension is taken care of by buying additional annuities for the amounts required. The annuities are purchased every year and the Pension Fund makes the payment to the LIC's G & S Dept. Thus the annuity contract is a normal business transaction for the LIC. Any profit entirely goes to the coffers of the LIC. Of course there will be an actuarial valuation of the G & S Business of the LIC as a whole, to determine whether it is working as per the premium rates prescribed but that is for the whole of the business of the G & S Dept.
The DHC has mentioned in the judgment “as per the Pension Rules annuities are purchased at the time of retirement or death of an employee”. However the Hon Bench cannot be faulted for the simple reason the court cannot be expected to have complete knowledge of the scheme and for this reason only, there is contradiction that “ Similarly amounts, if required, must be deposited in the Fund on the basis of actuarial evaluation for the in service pension optee employees”. The Pension scheme is actually a deferred annuity scheme. It is to be remembered that the Pension Fund consists of the contribution made to the CPF account of every employee throughout their service, that was transferred to the Fund as per the Scheme Rule 7. Such deposit for in-service employees is remitted @ 10% of their basic pay into the Pension Fund and further that in case of demise of the employee while in service, only payment of family pension is involved, the pension fund accumulation thus far relating to the particular employee will be a saving. The premium payable for the family pensioner is again based on the family pension payable which is limited to a maximum of 30% of the normal pension and the premium payable will be for this reduced amount and based on the age at entry of the family pensioner. The entire fund is a composite fund and cannot be identified individually.
Similarly there is no reference to the total amount of annuities payable to the retiree or his family. Thus every year the Pension Fund Trust, not the LIC, will pay an amount of premium, that is arrived on the basis of the age attained by the annuitants and the pension amount, to the G & S Dept. It is the G & S Dept that meets the pension payments. There will be a gain to that Dept due to exits during a financial year, of the annuitant (pensioner or family pensioner). It is note worthy that if an employee dies without any family pensioner, nothing will be payable from the Pension Fund. This is in contrast to the earlier CPF, which is payable to the nominee/heir of the deceased employee. Premium due under every policy, including an annuity policy, is based on table of rates, which in turn are on the basis of mortality rates, anticipated yield on investments and management expenses, & only life annuities are payable. It is further to be appreciated that while the entire amount of every employee collected either by transfer from the CPF of the employees and further monthly contributions @ 10% of basic pay for in-service employees, flows into the Pension Fund Trust constituted under Rule 5, the pension/family pension ceases on the exit of the pensioners. Just as there will a gain in the case of earlier death to the G & S Dept of only the unpaid pension for the year, there will be a saving of all the balances relating to the deceased employees to the Pension Fund. For family pension the liability is limited to 30% of the pension.
The Actuarial investigation contemplated under the Scheme is limited to examining, at the beginning of the year, the amount required to be paid every year to purchase the immediate annuities for the pensioners and any further contributions required as per Rule 11. The entire life insurance and annuity business of the LIC is subjected as a prescribed yearly annual exercise to determine the valuation surplus. The LIC has examined this aspect while considering introduction of the Scheme and the LIC Board Resolution referred to in the Jaipur HC SB Judgment reflects this. The said Board Resolution further supports increasing (revision) of the pension by 11.25% based on the Actuarial calculations submitted to it. If the introduction of a pension Scheme is done with the welfare of the employees in mind, as rightly held as a deferred wage by the National Human Rights Commission, and the LIC was confident of the strength of the Scheme(ibid), there is no surprise or need for any anxiety towards cost, to the claim for periodical revision of the Pension. As per the diktat of the Rule 11, any additional amount to be paid, is nothing but what is done under Rule 7(a) every year in case of any shortfall and that is only a contingency that can be easily corrected by the Actuarial appraisal done at the time of every quinquinneal wage revision. In the light of the opinion of LIC's own Actuaries as to the viability of paying an increased pension @ 11.25%, the plea of high cost, is invalid. The revisions of wages done with effect in 2002, 2007 and 2012 incurring larger outlay on wages has not affected the the valuation surplus. To emphasize, during all the wage revision after the introduction of the Pension Scheme in June 1995, the effect of the Pension payments have been considered together with the future impact and it had been found feasible to agree to a wage revision that was far more liberal than earlier wage revisions. Under the circumstances the doubts on sustainability of additional cost in 2017, is a falsehood to mislead the judiciary. Moreover, the revision is called for to rectify the anomalies arising as a result of discrimination, that needs to be removed to abide by Art.14 of the Constitution.
The total cost of the Pension Fund has been blown up, out of proportion in the LIC's written submission, which appears to have weighed with the Hon Bench of DHC. But the sad part of the conclusions is that the details have not been verified or argued at the bar. There is no disagreement that the Pension Scheme is in lieu of the CPF and that means all the commitment (present as well as future) towards the CPF, is shifted to the Pension Scheme. The CPF contribution is an accumulation of the Employers contribution from the date of employment of every employee made to the PF Trust constituted as required under the IT Rules. There is the further liability for payment, throughout the service of the employee. As and when every employee earns any increment, promotion or when there is a general revision of wages, this contribution increases correspondingly and this is a definite commitment under the law (Employees PF Act). With the introduction of the Pension Scheme in lieu of the CPF, the commitment remains the same and the CPF amounts gets transferred to the Pension Fund. The existing commitment due to increments, promotions and Wage revisions will only continue and it is to be appreciated that such increases are vetted during every wage revision. There may be further increases to the salary scales of the employees and their pension liability cannot be determined at present. The legal liability for increased pension benefits cannot be denied to the pensioners for that reason. Future increases to wage bills will add to the total of the Pension Funds also as it would have done to the CPF. Moreover the Pension Fund is now a closed Fund, upon not being extended to new appointments made. Under the circumstances there is no justification for considering it as a burden whereas it is only an annuity payment secured by the payment of premium, which becomes a normal business operation for the LIC, they having appropriated the premium according to the prevailing Table of rates for Annuities, that is used in the course of business.
A pension Scheme is a normal business practice of an Insurer and the price is fixed by the Insurer for the benefits offered. When a pension scheme is introduced, with a link to secure the pension payments, it is nothing but a contract and is governed by the Indian Contracts Act. Will the Hon Court permit an Insurer to wriggle out of the Annuity Contract to the general public for the reasons discussed (ibid). What would happen to the principles of 'consensus id idem' need not be explained to the SC to reject the ratio of the DHC as an error of judgment. This briefly answers all the contentions as to the cost of the scheme, which is contemplated and drawn by the dominant party to the contract, the Govt. The constitution of the Pension Fund is also mandatory under the I.T Act and therefore the theory of a Funded scheme is pointless, as there can be no estoppel against a statute and further the provisions of the scheme is drawn my the dominant party to the contract, and such a condition cannot be used against the pensioners, other parties to the contract.
The arguments on discrimination have been accepted by the DHC but the revision of the pension scheme has not been. Here also it is only for the simple reason that the mechanism of revision, as done in the LIC, is not adequately explained to be appreciated. A lucid explanation is given for the appreciation of the Hon SC to note that the claim for revision is not a claim in the nature of an OROP and there is no such thing of a rigid rule of fixed pension. While the mechanism of a revision is discussed (infra), a simple example of a revision is the minimum pension referred to even by the DHC, which the Hon Bench opined has to be increased whenever there is a wage revision to those who were earlier drawing such lower pension. The additional benefits provided for under Rule 55B also is a revision as per the CGCS Pension Rules and the Rule 56 states “matters relating to pension and other benefits in respect of which no express provision has been made in these rules shall be governed by the corresponding provisions of contained in the CGCS Pension Rules....”. That revision is to correct some mistakes existing or arising in future during the term of the contract is evident from the examples. In addition our claim for revision is to remove discrimination and for implementing the benefits offered by the Pension Scheme itself.
In the case of a revision of the pension, there is no associated increases as in a revision of the salary structure because a pension benefit is a stand alone benefit. A simple example would explain by comparing the revision of salary and pension. The DA payable for those who retired before 1-11-1993 as per Appendix IV of the Pension Rules is payable for every rise of 4 points over 600 points in the quarterly average of the Price index; while for those who retired after 1-11-1993 it is based on rise of every four points over 1148 points. There is a difference of 548 points representing 137 slabs of DA between the two groups. Similarly there is a difference of 592 points which is equal to 148 slabs between 1740 and 1148 points. The important point to be noted is that the DA payable for the 137 slabs for those who retired after 1-11-1993 is merged with their basic pay at the time revision of wages with effect from 1-11-1993 and this increased basic pay after adding the DA portion is considered for arriving at the new basic pay in the revised pay scales drawn up and to that extent there will be a reduction of the DA drawn before the revision. It is important to note that till this stage, there is no actual increase to the existing pay as the reduced DA is added to the basic pay.
In a general wage revision it is always agreed that there will be an increase of certain percentage to the existing wage and this percentage increase is added to the basic pay calculated after adding the DA portion merged. This merged basic pay arrived is considered for fixing the basic pay as per the new time scale of pay framed, pertaining the price index on the effective of implementation. The new scales would be relating to the index of the year up to which DA is merged and in that process fixation is given at the same stage as it was in the previous scale of pay. The DA payable is based of the new basic pay formed. This is also a revision and our claim is not novel. The DHC has pointed to the discrimination in the rate of DA as between those who retired earlier to 1-11-1993 and later to 1-11-1993 that is directed to be altered. The rationale is the same as that mentioned in the Rule 55B, which is attempted to be removed by the CGCS Pension Rules.
To sum up, the cost factor of revision will not change, as seen from the submissions; the Pension Scheme is in lieu of the CPF and the LIC's liability will remain the same. Further the increase if any is well under control because the pension liability is always considered as part of the total wage bill, before entering into a wage settlement. There need not be any alarm or anxiety, as an Actuarial opinion given to the LIC's own Board supports even an increase of 11.25% in pension.
There is only one additional contribution, as in Rule 11, to be made. But this mole is made to appear as a mountain, to misguide the judiciary. There is a quinquennial wage revision, the last one was in 2012. At that time there would have been an actuarial estimation of the cost of the revision for which the pension liability would have been taken into account. Besides there would have been an evaluation of growth of business and the premium income and only after satisfying the sustainability, the wage increase would have been agreed to. Such an assessment would not have been missed by the Actuaries, as this exercise is nothing before the valuation of the Life Fund of the Corporation. Further such shortfall, if any, found would be the future liability only and the present value of such liability will be considerably small. In fact all the factors for the annual actuarial investigation such as the total number of the pensioners, the total pension amount, the total pension fund, further accruals, the yield on investments etc are to be considered. Only the return of the investments is variable. For the Corporation managing a huge portfolio of thousands of crores of rupees successfully for the last six decades, the pension fund will not pose any problem.
One another phobia raised before the DHC was that of the fear of reduction of the bonus payable to the policy holders. The mortality rate of insured lives have considerably reduced, as compared to the Mortality Tables used for calculation of premium (modified Oriental 1925-35). Along with the the reduction of the mortality rates of the general population itself, with the advancement in the field of Medical science and the invention of new types of antibiotics the survival rates at birth have also increased..
The Hon SC may be pleased to know the Oriental 1925-35 mortality Tables were compiled before the invention of Penicillin (first used in 1942 during the II world war). Further the Medical Science today has seen tremendous advancement to save lives from the brink of death. United Nations Development Programme Key Highlights of 2016 mentions India's Life Expectancy at birth increased from 68 in 2015 to 68.35 years in 2016(69.9 yrs for women and 66.9 yrs for men). The life expectancy in 1947 of the population was a mere 32 yrs. The quinquenneal progress of the Life Expectancy at birth was as per the following chart:
INDIA LIFE EXPECTANCY AT BIRTH
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Year | 1980 1985 1990 1995 2000 2005 2010 2015
Life
Expectancy
Women 53.70 56.03 58.29 61.12 63.49 65.43 67.72 69.86
Men 53.78 55.70 57.61 59.80 61.82 63.66 65.35 66.91
All : 53.87 55.86 57.94 60.44 62.63 64.52 66.51 68.35
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This is according to the general mortality rates of the population but the mortality rates of insured lives will always be lesser. A report in the Business Standard on 9-6-2009 said “The Mortality and Morbidity Investigating Centre, an affiliate of the Institute of Actuaries of India, planned to publish the mortality tables by October”. It also reported that data are currently being collected “though a handful of large players, including the Govt owned Life Insurance Corporation of India, are yet to submit data, said IAI President G N Agarwal”.
The introduction of table top computers have revolutionized the administration and an indication of this is the settlement of claims almost on the due dates. The challenge is fully met with full computerization of all operations giving rise to lowering the management expenses. The average sum insured per policy has increased very much with the general per capita increase in the earnings, that has a telling effect on the expense ratio. There is no place in our country where the investment of the LIC is not seen, with the huge spread for social security, housing etc. The LIC is known for its conservative investments. With lesser mortality experience, lower expenses and better consistent yield on investment, there will not be any difficulty to maintain the bonus to the policy holders.
There is a total misconception that any increase in the expenses has a direct effect on the bonus payable to the policy holders. Only with profit policies are entitled to payment of bonus, for which an extra premium is added to the basic premium payable. Other types of policies are not loaded with the extra premium as there is no liability for bonus payment. The components of surpluses in life insurance are due to 1) reduction in the mortality experienced, that reduces early claims, 2) savings in Management expenses which in the LIC are within the prescribed ratio of 15% of the renewal premiums and 3) higher yield on the investment, which is the highest with prudent investment Management all these years. The bonus additions have been steady. All the three factors contributed by the with profit policies, with extra premium(bonus loading), alone are eligible for bonus. It is to be noted that the savings due to mortality, savings in expenses and higher yield on the investment in respect of the non participating policies as well as Annuity business is not considered for payment of bonus. In other words only the bonus loading determines the eligibility for bonus. One more point of interest is that the bonus declared is not uniform but is differential and depends on the type and term of the policy. In certain type the vesting age is a deferred to a later date from the date of commencement. Further with a full examination of all the factors at the time of every wage revision, there is no room for any doubt over the bonus payment.
To sum up discrimination under Art.14 has been established. The Pension Rules permits revision under Rule 55B & 56. Rule 55B is also a discrimination and hence has to be interpreted harmoniously, in view of the definition of employee as per Rule 2(j) which includes every employee from the lowest class IV cadre to the topmost cadre of Chairman. The Pension Scheme is in substitution of the CPF and the CPF liability includes not only the CPF Funds/contributions but also the future liabilities (ibid). If the Pension Scheme is in lieu of the CPF how can there be different norms of granting extra pension to a limited few of the Pensioners, as per Rule 55B. Pension liability is taken into account every five years along with liability for wages at the time of wage revision. Payment of Bonus to policy holders depends on the mortality factors and the yield on investment. The effect of Management Expenses, which includes salaries and pension is always taken care of during the wage revision and the only variable factors are the mortality, yield on investments and all the factors have been consistently favourable for the last six decades to be worrisome.
A.S.RAMANATHAN
-25917.
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80ee deduction for ay 2021-22
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