Life firms seek FDI leeway akin to pension sector

Foreign direct investment (FDI) in the insurance sector should match that given to the pension sector, as the two are related, and both address long-term savings.

This proposal has been made by the life insurance industry following the Finance Minister's budgetary address when he spoke of allowing FDI in the pension sector.

"The FM no longer talked of FDI in the insurance sector. We have written to the ministry that if FDI is given to the pension sector, it should be the same for the insurance sector," said S V Mony, secretary general, Life Insurance Council, the apex body of the life insurance industry.

The insurance industry will take up the issue with the government at the meeting with the finance ministry on March 23.

Moreover, the budget proposal to tax superannuation funds under the fringe benefit tax would also be taken up for discussion at the meeting.

According to industry players, the government has picked up taxing employee fringe benefits but has failed to read the fine print, which does not tax superannuation funds.

"The government has taken extraordinary steps to promote pension in the unorganised sector. At the same time, it is damaging existing pension schemes in the organised sector," Mony said.

The life insurance players are not opposed to the government capping the absolute benefit employees can receive under the superannuation scheme.

Today, there is a percentage cap of 15 per cent of the basic that employers can contribute to the scheme. However, salary variances could result in huge amounts to employees, which is what the government wishes to curb.

"We had in fact discussed a value cap on benefits, instead of the government branding everyone as misusing the system," Mony said.

Mony said while there were talks of allowing different FDI caps depending upon the size of the pension fund "" as is the case in the mutual fund sector "" this could damage the sector as the duration of pension funds are double that of insurance policies.

Meanwhile, the insurance industry is awaiting the grandfathering of section 80CCC benefits, which today do not exactly fall under the new Income Tax Section 80C.

The grandfathering clause will protect future premium instalment made to the existing pension plans. "Pension needs special treatment, as capping it at Rs 10,000 will result in double taxation," said Mony.

The government has continued to put a cap of Rs 10,000 on investments under pension schemes. Insurance players expect the government to raise the cap under pension plans, or free it under the Rs 1-lakh limit of section 80C.