Pension Bill may impact pension products of insurers: Industry

PFRDA would push for NPS, which offers attractive returns and gives choice to purchase annuity from seven life insurance companies

The Pension Fund Regulatory and Development Authority (PFRDA) Bill that has been passed by both houses of the Parliament is expected to give the much-needed boost to National Pension System (NPS). However, life insurance companies which also sell pension products believe that this could impact their sales.

 

The chief actuary of a private life insurer said that both PFRDA and the finance ministry would now push for NPS, which offers attractive returns and gives choice to purchase annuity from seven life insurance companies. 

 

"While pension product sales are not showing any remarkable growth, there is expected to be an additional push in the industry to buy NPS. With NPS being superior for customers in terms of returns and annuity choices, we see a 'pull' being created for NPS for our pension customers," said a chief executive of a private life insurance company.

 

In January 2012, the Insurance Regulatory and Development Authority (Irda) had said that pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said annuity had to be bought from the same company. 

 

These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap was filled after some private life insurers launched pension products on both the traditional and unit-linked platform.

 

The PFRDA Bill provides for establishing a statutory Pension Fund Regulatory and Development Authority to promote old-age income security, and to protect the interests of subscribers to the various schemes of pension funds. The Bill empowers PFRDA to regulate the National Pension System (NPS) and schemes not covered under any other Act, register and regulate pension funds and the central record keeping agency

 

Most life insurers feel the guarantee element has made pension products different from NPS, while their fundamental structures are the same. Unlike NPS, service tax is applicable to pension products.

 

There are still a lot of factors which are inhibiting life insurance companies to compete effectively in pension space. A senior life insurance company executive said that insistence of annuity being bought from same insurer, no partial withdrawal are some of the areas of concern that are inhibiting insurers to come up with attractive products.  

 

Pension products which earlier constituted about 20-25% of the total product portfolio of insurers now constitute 5-8% of the product portfolio. Yogesh Agarwal, chairman of PFRDA, had earlier pegged the number of NPS subscribers at 5.2 million, with about 850 companies and a corpus of Rs 35,000 crore, which doubled every year.