Irda pulls plug on 100% equity-driven pension plan

HDFC Life told to withdraw plan

The Insurance Regulatory and Development Authority (Irda) has asked life insurance companies to withdraw the growth option for pension, gratuity and superannuation funds, where investment in equity is up to 100 per cent. A small note to this effect was sent early this week to life insurance companies.

Government officials have, however, indicated that the pension reforms will allow for up to 100 per cent investment in equities.

This runs contrary to Irda's view, which does not believe that pension plans be allowed to invest up to 100 per cent in equities.

HDFC Standard Life Insurance Company, which today launched its unit-linked endownment and unit-linked pension plans, has been asked to withdraw the growth option under its existing unit-linked group gratuity plan.

The latter mostly allowed 100 per cent investment in equities. Further, HDFC Standard Life was not permitted to offer the growth option of 100 per cent investment in equity under its unit-linked individual pension scheme launched today.

HDFC Standard Life managing director & CEO Deepak Satwalekar said while the regulator continues to permit up to 100 per cent investment in equity for life insurance policies, it has asked the growth option to be withdrawn for the company's gratuity plan launched six months back.

As the gratuity scheme follows a defined benefit product, should the fund not match the returns promised by the employer, it is up to the corporate to top up the contribution, he added.

This indicates that members would not be affected by the volatility in the stock market as any shortfall in their returns would be made good by the corporate.

Irda has indicated its reservation of a high equity content in pension, gratuity and superannuation funds, as these could expose members to too much volatility in the stock market.

Interestingly, ICICI Prudential Life has a growth option under its unit-linked individual pension plan that allows for up to 100 per cent investment in equities. This plan was launched in May 2002.

Birla Sun Life Company has limited is investment in equity to 35 per cent in the case of its pension plan and 50 per cent under its group gratuity and superannuation plans.

Birla Sun Life vice-president actuarial, K S Gopalkrishnan, said: "We have capped in equity investment at 50 per cent since we guarantee the contributions made to the superannuation fund."

As far as its gratuity scheme is concerned, as Birla Sun Life offers a defined contribution plan, it is necessary to ensure that members (read employees) are not exposed to the vagaries of the stock market, he added.