 "Provide annuity date while buying pension")
Buying an annuity plan in advance is one of the best ways to ensure a regular income after retirement. Often, the annuity is delayed because the insurer is unaware of the date of starting the payments.
The Insurance Regulatory and Development Authority of India (Irdai) has decided to plug this by asking insurers to obtain this date when the policy is being sold. So, those who have purchased pension plans with deferred annuity options and whose payments are due to start after April 2106 might receive calls from the insurance company asking for the annuity option. You could receive the call even if you had indicated the option at the time of buying the policy.
According to the regulator, in the case of deferred annuity plans, there is delay in starting the annuity on the vesting date as insurance companies are not obtaining the options from policyholders in advance.
In deferred annuity plans, the premium and bonuses are paid for a certain number of years, called the accumulation phase. The corpus gets converted into annuity after the vesting date and the pension payout starts. For instance, the accumulation might be from 35 to 55 years of age. The annuity is purchased at 55 years, the vesting date, and pension payout starts. Hence, if the payout options are not indicated beforehand, the purchase of annuity and the subsequent payouts, too, get delayed.
In the case of regular money-back or endowment plans, on maturity the money is paid to the policyholder or beneficiary. But, in the case of pension plans, it is mandatory to buy an annuity. That is why it is important to indicate the option beforehand.
Policyholders can use the entire corpus to buy an annuity or withdraw up to 30 per cent of the corpus. They can choose from a variety of annuity payout options, such as lifetime annuity, lifetime annuity with return of premium, annuity guaranteed for a certain period followed by return of premium, etc. But, policyholders often do not realise when the policy reaches the vesting date.
“Often, policyholders are lax in informing the company about the payout options because there is no pressure on time. But the point is that when the annuity is delayed, it is a loss to the policyholder. The money, then, lies in the company's unclaimed account,” says Sujoy Manna, vice-president (products) at HDFC Standard Life.
Currently, it is not mandatory for the policyholder to indicate the payout option at the time of purchasing the policy. Since the vesting date is some time away, neither the insurance agent nor the company insists customers choose the payout option, says Sridharan S, head of financial advisory Fundsindia.com.
According to Irdai’s guidelines, companies must ask the policyholder the annuity option at the proposal stage and capture it in the policy records. For this, companies should make the necessary provision in the proposal forms.
In the case of policies sold, where policyholders have not given their option at the proposal stage, companies must ask them for the option immediately and record it. Companies should inform policyholders about the various annuity options and the amounts payable under each option, six months prior to the vesting date.
Policyholders should also be given the option of revising the annuity options based on latest information. In case no communication is received from the policyholder three months before the vesting date, the company must assume the payout option is the same as indicated in the proposal stage.
“If the policyholder has reached retirement age, the corpus can be a sizeable one. The monthly payouts, too, could be substantial. Even a delay of a couple of months can be a big loss to the policyholder,” points out Deepak Yohannan, CEO and founder, Myinsuranceclub.com.
The Insurance Regulatory and Development Authority of India (Irdai) has decided to plug this by asking insurers to obtain this date when the policy is being sold. So, those who have purchased pension plans with deferred annuity options and whose payments are due to start after April 2106 might receive calls from the insurance company asking for the annuity option. You could receive the call even if you had indicated the option at the time of buying the policy.
According to the regulator, in the case of deferred annuity plans, there is delay in starting the annuity on the vesting date as insurance companies are not obtaining the options from policyholders in advance.
In deferred annuity plans, the premium and bonuses are paid for a certain number of years, called the accumulation phase. The corpus gets converted into annuity after the vesting date and the pension payout starts. For instance, the accumulation might be from 35 to 55 years of age. The annuity is purchased at 55 years, the vesting date, and pension payout starts. Hence, if the payout options are not indicated beforehand, the purchase of annuity and the subsequent payouts, too, get delayed.
In the case of regular money-back or endowment plans, on maturity the money is paid to the policyholder or beneficiary. But, in the case of pension plans, it is mandatory to buy an annuity. That is why it is important to indicate the option beforehand.
Policyholders can use the entire corpus to buy an annuity or withdraw up to 30 per cent of the corpus. They can choose from a variety of annuity payout options, such as lifetime annuity, lifetime annuity with return of premium, annuity guaranteed for a certain period followed by return of premium, etc. But, policyholders often do not realise when the policy reaches the vesting date.
“Often, policyholders are lax in informing the company about the payout options because there is no pressure on time. But the point is that when the annuity is delayed, it is a loss to the policyholder. The money, then, lies in the company's unclaimed account,” says Sujoy Manna, vice-president (products) at HDFC Standard Life.
Currently, it is not mandatory for the policyholder to indicate the payout option at the time of purchasing the policy. Since the vesting date is some time away, neither the insurance agent nor the company insists customers choose the payout option, says Sridharan S, head of financial advisory Fundsindia.com.
According to Irdai’s guidelines, companies must ask the policyholder the annuity option at the proposal stage and capture it in the policy records. For this, companies should make the necessary provision in the proposal forms.
In the case of policies sold, where policyholders have not given their option at the proposal stage, companies must ask them for the option immediately and record it. Companies should inform policyholders about the various annuity options and the amounts payable under each option, six months prior to the vesting date.
Policyholders should also be given the option of revising the annuity options based on latest information. In case no communication is received from the policyholder three months before the vesting date, the company must assume the payout option is the same as indicated in the proposal stage.
“If the policyholder has reached retirement age, the corpus can be a sizeable one. The monthly payouts, too, could be substantial. Even a delay of a couple of months can be a big loss to the policyholder,” points out Deepak Yohannan, CEO and founder, Myinsuranceclub.com.