This is the sole and exclusive property of HDFC Life. May 20, 2019
Protecting our golden years... Opportunity in the retirement space in India
Vibha Padalkar
MD & CEO, HDFC Life Insurance Company Ltd.
Most people bank on a default retirement plan - serendipity
2
29% 23%
62% 60%
9% 17%
2015 2050
Ageing population
Age <15 years Age 15-59 years Age 60+ years
3
Source: Crisil PFRDA, UN Population Estimates
India, perceived as a “young country”, now has a rapidly increasing ageing population
By 2050, every sixth Indian will be a sexagenarian compared with every eleventh now
Proportion of the elderly is expected to double to ~17%
as of 2050
By 2050, 1 in 6 people over the age of 60 will live in India, bringing the future
market to 200 million people
41.5% of elderly male (65+) are working to meet their retirement needs
Improvements in life expectancy will lead to an average post retirement period of 20 years
16 17
19 20
18 18
22 22
1995-2000 2000-05 2011-12 2030E
Life expectancy at age 60 Males Females
4
Changes in our societal structures and lack of mindfulness about retirement savings have led to a ticking time bomb-ish situation
Unorganized workforce not under any
formal pension scheme is 82.7%
Sources: Milliman Asia Retirement Report 2017; Survey by NSSO, Ministry of statistics and Programme implementation Crisil PFRDA, Census of India, UN Population Estimates
52% of elderly population in both
urban and rural
areas are fully dependent on others
Decreasing average household size
1981 1991 2001 2011 2018E
5.5 5.1 4.6 4.2 3.9
Traditional support structures of joint families have been consistently declining thereby driving up the old age dependency ratio
143 158 174 191 208 225 247
268
0
100
200
300
2015 2020 2025 2030 2035 2040 2045 2050
Old age dependency ratio per thousand
Financial literacy as % of population
is 18% as compared to global
average of 33%
5
India has a long way to go!
Source: “Global Pension Assets Study 2019”; Thinking Ahead Institute – Willis Towers Watson (2019)
Compared to global benchmarks, India's pension market is woefully under-penetrated at 4.8% of the GDP
1.5 4.8 9.0
13.8
43.2 44.3 45.4
56.4 60.8
65.4
84.2 94.0
101.7
120.5 126.0
130.7
166.7
Pension Assets/GDP Ratio
-
10,00,000
20,00,000
30,00,000
40,00,000
50,00,000
60,00,000
70,00,000
2014 2016 2018 2020 2022 2024 2026 2028
Total Pension AUM (₹ trillion)
So, what is the opportunity size ?
Estimated market opportunity (organized sector)*
2018 2025
47 tn
*PFRDA, IRDAI, HDFC Life Market Intelligence
21 tn
47 tn
● Mandatory schemes will play a key role in increasing coverage
for both unorganized and organized sectors
● Govt. schemes like Atal Pension Yojana (APY) currently limited
to banks has scope for further penetration through insurers
27% 17%
3%
7%
11%
34%
54%
36%
2018 2025
SAF/Gratuity Annuity NPS NPS Govt. EPF PPF MF Pension
Unorganized sector accounts for 82% of the working population, which immensely increases the opportunity pie
6
7
But there are challenges…
But there are challenges…
Inability to anticipate future
financial needs
Deposits are popular choice
with retirees
49% 48% 33%
42%
51% 52% 67%
58%
FY07 FY10 FY13 FY17
Financial savings Physical savings
There is a significant lack of awareness among Indians regarding systematic retirement planning
With a culture of saving in physical assets…
..there a low mindshare to invest in pension savings for
retirement
58% savings are mostly in property and gold Only 16% of financial savings are in pension funds
“Shifting to an opt-out model for pension schemes like NPS and tax incentives for annuities will help in gaining mindshare"
9
Financial savings mix
Household savings composition
65% 50%
67%
44%
15% 26%
18%
25%
9% 13% 12%
16%
11% 11% 3%
15%
FY07 FY10 FY13 FY17
Currency & deposts Life insurance Provident/Pension fund Others
But there are challenges…
Mandatory pension schemes do
not cover the large population Social security is low in India
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Significant scope for improvement within Asia Pacific and India in particular
Sources: World Social Protection Report 2017-2019, Milliman Asia Retirement Report 2017
In India, only approx.
19% of population
covered under formal social security
Indians covered under formal social security is lower than the average of the region
Significant scope for improvement within Asia Pacific and India in particular
EU and Central Asia Americas Asia Pacific Africa
% of population receiving at least one social security benefit
84% 68% 39% 18%
12
Source: OECD.
• Percentage indicates how effectively existing pension schemes are utilized
• India has less than 6% covered by a pension scheme, as opposed to countries such as USA, UK, and Japan (above 90%)
India’s coverage of mandatory pension schemes is lowest amongst Asian counterparts
5.5 6.3 13
19 19 19
29 33
40
50 52 54 57
61 66
70 70 71 72 75
9 10
18 22
27 30
36
46 51
61
71
80
87 87 87 90 91 92 93 95
Coverage of mandatory pension schemes (%)
By population (age 15-64) Active labour force
But there are challenges…
Low mindshare to invest in
Pension Low financial literacy
Significant % of India’s population is unaware of financial investment opportunities leading to low pension contribution
14
18
30
20
33
38
33
0
5
10
15
20
25
30
35
40
India Brazil China Russia South
Africa
World
Financial literacy among population (%)
Awareness of financial investment opportunities is least in India as compared to global
counterparts
Sources: “Micro-pensions in India: Critical Issues, Challenges, and Strategies For The Future; Arunachalam et al.; World Bank; Maps of India; OECD
Low pension contribution amounts, owing to low disposable income & awareness across India, do not
provide sufficient cover for retirement
8.4
3.5 4
10.7
0.3 0.6
3.2 3.9
8.2
1.1 1 0.01
1.6
0
2
4
6
8
10
12
Pension contributions as a % of GDP
But there are challenges…
Varied products with different
tax treatment
Fragmented and disjointed
pension system leaving
customers confused
We also have a fragmented and disjointed pension system
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PFRDA EPFO IRDAI
10% of basic by employer + 50K
Post Retirement
EEE/T
Lump sum + Pension
NPS
Employer Contri tax-free (12%)
Employee Contri within 80C (12%)
Post Retirement
EEE
Lump sum
EPF
Up to 150k within 80C
15 years
EEE
Lump sum
PPF
SEBI
Up to 150k within 80C
3 years
EET
Lump sum
MF Pension
8.33% basic pay up to 20L
5 years
EEE
Lump sum
Gratuity
15% of basic pay up to 150k
Post Retirement
EEE/T
Lump sum + Pension
SAF
Up to 150k within 80C
10 years
EET
Lump sum + Pension
LI Pension/ Annuity
4 Regulators
Tax Benefits at contribution stage
Varied period of Vesting
Differing Tax Treatment
Differences in Payout at Exit
7 Different Products
Multiple regulators, seven different products, different tax benefits and treatment are leaving
customers confused
Products that insurers / subsidiaries are allowed to sell
17
Can we make India a Pensioned Society?
By addressing specific areas we do see an opportunity to boost pension coverage in India
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● Increase adoption of
NPS (tap increasing
workforce)
● Leverage distribution
scale of MFs & LIs
Distribution Awareness about
Pension investment
Products & Implementation
Policy reforms & regulations
1 2 3 4
● Increase financial
literacy
● Encourage investment
in pension schemes
● Allow flexible payment
and withdrawal options
● Explore innovative
annuity solutions
● Widen the investment
avenues for annuity
● Process simplification
from enrolment to exit
● Regulatory & tax
consistency
● Low expenses for
Pension – EOM for LI
● Requirement of non-
zero returns in LI
pension plans
● Low FMC(0.01%) for
NPS
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We are putting our money where our mouth is…
(HDFC Life’s ecosystem)
77% 65%
71% 69% 68%
22% 34% 28% 31% 30%
FY10 FY09 FY08 FY07 FY06
Savings Protection Pension
HDFC Life identified the retirement opportunity early and has been a key contributor to uplift this category
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Retirement was a focus even in the initial years – Pension contributed to average ~30% share in the portfolio
HDFC Life portfolio break-up (APE) – FY06 to FY10
HDFC Life’s core brand thought “Sar Utha Ke Jiyo” was inspired by essence of
retirement savings - most of us do not want ourselves or our families to ever depend on somebody else
HDFC Life is working to build a pension distribution ecosystem that will help deepen coverage
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ASP
(Annuity Service
Provider)
POP
(Point of Presence)
PFM
(Pension Fund
Manager)
*as % of overall NBP
412 Life offices (plus bank branches) 91,172 number of agents 51.4 mn lives covered in FY19
Large distribution network that enables wider reach
HDFC Life – Pension distribution ecosystem
YoY growth of 102% in AUM to Rs 51.7 bn
Ranks #1 in corporate subscribers base
2600+ crs annuity business in FY19– still potential for growth
Portfolio share increased from 6% in FY15 to 17% in FY 19*
Creating adjacencies like Life99 platform, a one stop solution for all retiral needs across employee demographics, will enhance customer experience
Retirement Platform I One-view I Buying Journeys
Save Tax
Build Wealth
Retirement score
Buy NPS
Annuity Options
Senior Care
Get one-view of retirement corpus and plan for
retirement 1
NPS subscription option to save taxes and annuity
options for retirement income 2
Buy voluntary covers – NPS, Annuity 3
Avail services on the go (including value added
services) 4
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We have also been innovating in the annuity space...
Possible Annuity variants
Health
Linked
Flexible
Par
● Gap in the Indian market
● Provides for long term care
(income) on CI, disability
Immense scope for product innovation Breakthrough with innovative “HDFC Life Pension Guaranteed Plan”
● Deferred annuity product – max 10 years
● Attractive rates
● 2600+ crs annuity business in FY19
● Copied by the market
● Well received by the customers
● Equity and index
linked annuities
● Better risk
management for
insurers
● Flexible annuity options to
increase guarantee after
the purchase of contract
● Participating annuity
● Helps to give potential higher
returns (part guaranteed)
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…..driven by risk calibrated investment opportunities
Product design & mix monitoring
2
Residual strategy 4
● Protection and longevity businesses
● Unit linked and non par savings products
● Quantum of retail guaranteed products
<8% of AUM
● Prudent assumptions and pricing approach
● Return of premium annuity products (>90% of
annuity); Average age at entry ~59 years
● Limited deferment period in deferred annuity (<5 yrs)
● Regular monitoring of interest rates and business mix
● Long term government securities and partly
paid bonds issued by top tier corporates
● Utilise excess asset duration from short
duration liability products to support long
duration liabilities
● External hedging instruments such as FRAs, IRFs,
STRIPs amongst others
Natural hedges 1
ALM approach 3
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Pillar 0 Universal Social Security
Pillar I Pay as you go
Pillar II Occupational Pension
Pillar III Personal Pension
Pillar IV Informal support
Non-contributory social pension framework
Financed by govt - IGNOPS & State Schemes
Payouts are meagre at Rs 200 p.m. and varying contribution by states
Defined benefit (DB)
Replaces portion of pre-superannuation income
High stress on the fiscal system; govt transitioned from DB to defined contribution (DC) pension in 2004
Defined contribution (DC) - Mandatory, organized sector
EPF –money invested in fixed income assets
Lacks depth due to low share of the organised sector in the country’s economy
Voluntary – NPS, APY, MFs retirement plans, pension plans LIs & PPF
Variation in the solutions offered – Annuity,Accumulation,fund options etc
Affordability & persistency issues for low income segment
Family or other informal financial and non-financial support
Failing in recent times with the onset of urbanisation and nuclearization of families.
5 pillar
Pension coverage in India
Life insurers, with their vast reach and expertise can play a pivotal role in increasing pension coverage across the country
Source: PFRDA, AMFI, NSAP, IRDA, Crisil Research, Annual Report 2014-15 of NSI 25
Caters to low income
groups with low
pension amounts
Nearly non-existent Vanishing support
Key to reduce financial burden on both society and govt.
Thank You