IRDA is changing rules for pension plans

IRDA is about to change the pension plan which consists 30% of the life insurance industrys business. This move may help the industry recoup business volumes that have dropped sharply after the regulator imposed stringent guidelines late last year.

IRDA in June altered norms that govern unit-linked insurance plans (ULIPs) – a hybrid insurance product that invests part of the premium in equities. The changes, which came into effect from September, included the so-called linked pension schemes that invest in equities and bonds, but there was no stipulation on the quantum of such investments. In contrast, traditional plans invest at least 50% in government bonds, 15% in infrastructure instruments and the rest in equity, bonds and other assorted money market instruments. IRDA had made it mandatory for insurers to offer a 4.5% guaranteed return on all linked pension and annuity schemes.

The Life Insurance Council, a representative body of Indian life insurers, proposed some changes to the regulator for pension schemes. IRDA is likely to accept most of the proposed changes.

Under the revised guidelines, the 4.5% guaranteed return portion in a pension scheme may no longer be mandatory. Policyholders are likely to be given options to choose from a range of pension products linked to equity without a guaranteed return, but holding prospects of better return in the long run. There would be yet another option where the insurers may be allowed to offer products with a guaranteed return of 4.5%, but with many riders, including health cover.

IRDAs stringent norms kept many firms from launching new Retirement Pension Plan products under the new guidelines. Of the 23 life insurance companies, only four-Life Insurance Corp. of India, ICICI Prudential Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd and Aegon Religare Life Insurance Co. Ltd-have launched new plans. These 23 life insurers have assets under management of about Rs14 trillion. During the first 11 months of fiscal year 2011, the new business premium of private insurers grew just 4% to Rs30,756.02 crore over the April-February period of the previous year.

The private insurers experienced negative growth of about 34% over the period September 2010 to February 2011 compared to the same period in the previous financial year.

To help policyholders protect lifetime savings from adverse market fluctuations, it mandated insurers to offer a minimum guaranteed return on unit-linked pension plans. It disallowed partial withdrawals in such pensions and annuity products during the premium-paying period. The insurers were asked to convert the accumulated fund value into an annuity at the chosen plan date.

Under the new guidelines, policyholders are allowed to withdraw up to a maximum of one-third of the accumulated value as a lump sum at the time of vesting. In case a policy is surrendered, the money is locked up to the vesting period and no withdrawals can be made. Insurers expect IRDA to relax these norms.

Source: https://www.policymantra.com/blog/irda-is-changing-rules-for-pension-plans/