In 2025, the average projected salary hike in India is 9.4% (refer to the graph below for industry-wise projected Salary Increase rates)
🔊 That’s good news for employees. But what does it mean for your actuarial liabilities?
Most companies assume a salary escalation rate of 6% to 10% for actuarial valuations. But if the actual hikes are consistently higher as compared to the assumption — say 9.5% or 10% as against the assumption of 8% — you’re looking at a material underestimation of future liabilities like:
💰 Gratuity
🌍 Leave Encashment
🥇 Other Long-Term Retirement/Employee Benefits
Here’s the impact: A 1% higher increase in salary escalation as compared to assumption or 1% increase in salary escalation assumption may lead to a material increase (ranging from 5% to 15%) in liability — depending on multiple factors such as employee demographics, the benefits under the plan and the attrition rate assumption used in the valuations.
💡 Underestimating salary growth assumption = Understating liabilities
Over time, this can affect your P&L, balance sheet, and even the funding decisions.
🤔 CFOs & Finance Teams: When was the last time you updated your salary escalation assumption? Is it still realistic in today’s market?