KAP’s Interest Rate Updates for Employee Benefits as on 30 September 2020
September 30, 2020
COMMENTS AND INSIGHTS
Economic factors have rendered the G-Sec rates very volatile and a significant decrease is seen in the rates over the last year. G-sec rates have reduced on an average by 20 basis points when compared to March 2020 rates with a fall being seen for the 10year bonds by almost 70 basis points.
Rates, however, have increased on an average by approximately 15 basis points when compared with June rates. For a short and medium term period up to 7 years, there has been an improvement of the G-Sec rates by approximately 30 basis points when compared with June. Such increases will contribute to a decrease in the employee benefits obligation for a 3-month period.
The volatility has been heightened during the last few months due to the uncertainty of the economic impact of the pandemic in the medium and long term. A reduction in the rates will give rise to Actuarial Losses. We have seen some of these losses be balanced with a dampening of salary increase expectations by companies. The net impact on obligation calculations is largely determined by the gap between the salary growth rate and the discount rate. However, even a small change when deciding assumptions shouldbe done with careful consideration of the entity’s expectations and after discussion withthe Actuary and Auditor so that they reflect the best long term estimates.
“Pandemic effecthas made theDiscount Ratevolatile withdownward bias.
The expected buoyancyin the economicactivity postpandemic may seea rising tail”
INTEREST RATES THROUGH THE LOCKDOWN AND UNLOCK PHASES
Lockdown:
Lockdown 1.0 - 25 March 2020
Lockdown 2.0 - 15 April 2020
Lockdown 3.0 - 04 May 2020
Lockdown 4.0 - 18 May 2020
Unlock:
Unlock 1.0 - 01 June 2020
Unlock 2.0 - 01 July 2020
Unlock 3.0 - 01 August 2020
Unlock 4.0 - 01 September 2020
COMMENTS AND INSIGHTS
The G-sec rates have reduced significantly during the lockdown, with major impact being seen for the tenure of 5 and 10 years.
With the easing of the lockdown, G-Sec rates have shown a steady improvement.
Rates for longer durations seem less volatile, and have shown steady improvement since Unlock 3.0on account of the kick-starting of various economic activities.
Our Insights blend analytical rigor with strategic foresight, helping businesses navigate uncertainty with confidence. By quantifying risk and modeling future outcomes, it empowers smarter decisions, sustainable growth, and long-term value creation.
Volatility in the Interest Rate March 2017 v/s June 2017
Employee Benefit Obligations are to be valued based on G-Sec rate of estimated term as prevalent at the end of the reporting period.
Topic to be covered: Volatility in the Interest Rate March 2017 v/s September 2017
Employee Benefit Obligations are to be valued based on G-Sec rate of estimated term asprevalent at the end of the reporting period.
K. A. Pandit's Social Security and Retirement Landscape Pulse Survey 2022
It is now nearly 2 years since the Code on Social Security, 2020 was enacted. We await a notification announcing the date when it shall come into force
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