IRDA to give more options for old age

Those investing in unit-linked pension plans will now have more options. The insurance regulator is planning to come out with four-five types of pension plans with different guarantees.

The plan that is available at present guarantees a return of 4.5 per cent on maturity. Only a handful of companies offer this, as the guarantee makes it difficult for them to invest in equity. For investors, too, the 4.5 per cent return is not attractive.

The Insurance Regulatory and Development Authority (Irda), which is revising the guidelines for unit-linked pension plans, is working on more products with assured benefits - but not necessarily the rate of return.

"There will be a spectrum of guarantees. For instance, there could be a guarantee on premiums paid or sum insured or rate of return or annuity," said an Irda official.

At present, the assured return is linked to the reverse repo rate (at which the Reserve Bank of India borrows from banks). The insurers have to give at least 50 basis points over this rate.

The official said while there must be a guarantee in one form or the other, the regulator was aware that individuals had different risk appetites and should have the flexibility to decide their equity exposure.

"There could be four to five sets of products," he said. However, he said even with a higher equity exposure, two-third of the maturity corpus must be converted into annuity.

Insurers may also be allowed to trade in equity futures and options. Irda is also considering fixing the minimum annuity amount at Rs 1,000 per month.

Irda has, however, rejected the industry demand for a non-guaranteed unit-linked pension product.

New pension product offerings have fallen after the introduction of new rules last September.

Only Life Insurance Corporation of India has launched a regular unit-linked pension product under the new rules. A few private players have launched unit-linked pension plans, but only single-premium ones.

"Under the existing framework, offering 4.5 per cent on one-time premium is feasible in the long term. Also, a single-premium pension product does not provide long-term protection," said a senior official of a private life insurance company.

Last year, pension products accounted for 20-25 per cent of the total new business premium collected by the industry. Around Rs 65,000 crore (Rs 650 billion) came from pension products.