September 2002

India has experienced significant reductions in interest rates in the past year along with the world's other economies. The effects of these reductions cannot bypass retirement benefit plans. New investments are expected to earn a much lower yield than that currently being earned from funds already invested. As a result, lower interest rate assumptions will have to be adopted by many plans in their next actuarial valuations and the consequence of this will be to increase the value of the liabilities.

Defined benefit plans have been further affected by the LIC's increase in annuity rates on 1 April 2002, which has increased pension costs by between 30% and 50%. In order to mitigate the potential adverse effects of unbudgeted year-end increases in retirement provisions, companies should consider addressing the issue at the current mid-year point by instigating a mid-year valuation.