After unit-linked pension products disappeared from the market following an imposition of guaranteed returns of 4.5 per cent, the Insurance Regulatory and Development Authority (Irda) has decided to revise the pension norms in April.
“Since companies are busy this season, we have decided to come out with new guidelines in the next financial year. We will issue the draft guidelines in April,” said a senior Irda official. In the new guidelines too, the regulator will ensure the capital of policyholders was protected.
He said the existing guidelines were not liberal and the revised ones would give some flexibility to the insurers. It would look at protecting premium along with adding some returns.
“Guarantee at this level is unattainable and is the main reason for drop in sales,” the official added.
New product offerings have declined following the introduction of new rules in September. While only the Life Insurance Corporation (LIC) of India launched a regular unit-linked pension product, others like ICICI Prudential Life launched unit-linked pension plans on a single-premium platform.
Most insurers say offering 4.5 per cent on one-time premium is feasible compared to long term. Also, a single-premium pension product does not provide long-term protection.
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Returns on pension products have been linked to the reverse repo rate and insurers have to offer an additional 50 basis points over the same.
Given the recent rise in reverse repo rate, the returns on unit-linked pension plan are likely to be 5.5-6 per cent for 2010-11.
“We have not launched any pension product as we do not believe in offering a guarantee of 4.5 per cent. Capital guarantee would be a welcome option and would give us some flexibility,” said a senior executive of a life insurance company.
Last year, pension products constituted 20-25 per cent of the total premium collected by the industry. Around Rs 65,000 crore came from the sale of pension products. Total premium rose 18 per cent to Rs 2,61,025 crore.
With only a few players selling the product, it has fallen significantly.