The Insurance Regulatory and Development Authority (IRDA) is all set to give a makeover to the much talked about Pension plans. Since a long time, insurance companies have been unhappy with the 4.5% guaranteed annual return clause attached to pension products in India. This clause was one of the main reasons that deterred insurance companies from selling pension plans, with the exception of Life Insurance Corporation of India (LIC).
On the sidelines of the Insurance Summit, IRDA Chairman, J Hari Narayan said, “More than 90% of all pensions are with LIC and that is too much of a risk to be allowed to continue.”
In the new exposure draft on pension products, IRDA said, “Earlier, we required all pension products to ensure an accumulation at a rate of 4.5% which was also indexed to the Reverse Repo Rate of the RBI. Because of the uncertainty in relation to investment returns etc, that requirement of IRDA did not find wide acceptance in the market. We have since reviewed the position and propose to expand the option of pension products.”
The regulator has decided to do away with the assured 4.5% return on pension plans and have an assured benefit disclosed at the time of sale, where the assured benefit is an amount in absolute terms which becomes payable on the vesting date.
The other conditions attached with pension products require insurance companies to disclose:
1) An illustrative target purchase price for each policyholder considering the premium payment capacity, age, vesting age and the future expected conditions.
– Possible risks involved, if any, in meeting the targeted purchase price.
– Possible risks involved, if any, in purchasing the targeted pension rate/annuity rate.
– An illustrative target annuity/pension rates for the illustrative target purchase price.
2) Any pension product offered by the insurer may have an optional insurance cover throughout the deferment period or may offer riders, which are approved under the file and use procedure.
3) At the date of vesting or at the date of surrender, the policyholder shall be given an option to commute up to a 1/3 rd of the amount realized.
4) At the date of surrender, the balance amount remaining after commutation shall be utilized to purchase pension, guaranteed for life, at the then prevailing annuity or pension rate.
5) At the date of vesting, the balance amount remaining after commutation shall be utilized to purchase pension, guaranteed for life, at the then prevailing annuity rate.
6) The prevailing annuity rate shall mean the annuity rates that shall be allowed to be applied to each of the pension products as per the latest approval accorded by the Authority as per the file and use procedure.
7) If the policyholder dies during the deferment period, the nominee shall be entitled to:
– utilize the entire proceeds of the policy as on that date including the rider benefits, if any, or part thereof for purchasing an annuity at the then prevailing rate; or
– withdraw the entire proceeds of the policy;
8) At the time of vesting, the annuity shall be provided by the same insurer who contracted the original deferred annuity policy.
9) All the unit linked pension products shall comply with IRDA (Treatment of discontinued linked insurance policies) Regulations 2010.
