The Insurance Regulatory & Development Authority (Irda) may review returns that insurance companies must guarantee on pension plans on the basis of the economic situation and interest rate movements.
The Hyderabad-based regulator has pegged the 4.5 per cent return on three broad parameters — the savings deposit rate, the reverse repo rate and the yield on 10-year government bonds.
“There is no scope for change immediately. The rate is broadly linked to the savings bank rate, the reverse repo rate and government bond yields,” said a senior Irda official. The return would be indexed to inflation and interest rates, the official said, adding the regulator wanted to make sure that policyholders did not lose capital in pension plans.
“Whenever there is a macroeconomic change and the Reserve Bank of India revises key policy rates, we may look at revising the prescribed return,” the official said. Depending on interest rate movements, the returns would be changed more than once a year, he said. Still, actuaries at life insurance companies say they will find it difficult to manage long-term guarantee because there are not many long-term instruments. They also expect the product to become costlier. The longest maturity government bond has tenure of 30 years.
In earlier norms, Irda had said pension products need not offer life insurance or health insurance cover. But, in the final guidelines, it said an insurance contract offering one of three — life insurance, health insurance or annuitisation on human life — would be categorised as a life insurance product.