Majority of the life insurers in India have decided to stop selling any pension products from September 1. This comes after insurance regulator Irda ruled to guarantee returns on these products.
The Irda had announced sweeping regulatory changes for all unit-linked insurance plans (Ulips),an investment linked insurance product,which will be implemented from September 1.
For Ulip pension products,the insurance regulator had asked life insurers to guarantee a 4.5% return in the first year. From the second year,the guarantee will be linked to reverse repo rate that Reserve Bank of India (RBI) pays to banks for overnight parking of government securities.
Earlier,Irda had rejected the request from the life insurers to re-examine the condition of offering the guaranteed return of 4.5% on the pension products and had laid down an index linked to reverse repo rate. This had further complicated the problems of the life insurers.
We have decided to discontinue the entire range pension products from September 1. Though we are in the process of filing of new products on the bases of new norms laid down by Irda,we will not file any new pension products for now, said Rajiv Jamkhedkar,MD & CEO,Aegon Religare Life Insurance.
IDBI Fortis Life Insurance MD & CEO GV Nageswara Rao also confirmed that the company has not filed for any new pension product for now.
We have not been able to find any mechanism to provide the minimum guarantee at 4.5%. Also,we are waiting for certain issues to be addressed by the regulator after it has come out with a clarification over the issue a week ago. Hence,we have decided to exit from pension products,” he said
Though establishing the linkage of the guarantee on pension products to the reverse repo rate since second year onwards was welcome,the problem is that life insurers have been asked to take an average of the reverse repo rate of the previous fiscal.
It is a difficult task for us to do so as we will be investing the fund from the first year itself. We will take a call on filing for new pension products later on,” he said,adding that currently the policyholders with pension product comprise 25% of the company’s customer base.
Kshitij Jain,MD & CEO,ING Vysya Life Insurance,revealed that pension products would not be a part of the range of new products that the company is currently busy filing with Irda.
We see it a critical part of our product portfolio as 30% of our existing policyholders have opted for pension products and 10% are having equity-linked pension products. We will surely take a call on it later on, he said.
Another issue that vexed the insurers is that the Irda’s stipulation of 4.5% guaranteed return on pension products would actually bring down the much-higher returns the customers had been offered from the beginning.
ICICI Pru Life Insurance is giving returns of more than 4.5% and any regulation on putting a cap on the minimum guarantee on the return will only mean that the policyholders will be getting reduced returns from September 1,said a senior ICICI Prudential officer.
We have been giving the return ranging around 7% for the fixed income and 40-60% in the equity options for the linked pension products,” said Rao of IDBI Fortis Life insurance.
Aegon Religare Life has been able to give return of up to 100% in the equity-based pension products,which were launched in January last year. In fact,it is more than the Nifty which had moved up to 88% only during the period.
The net asset value (NAV) of our pension product has gone up to Rs 20 as compared to the Rs 10 at the time of inception,” said Jamkhedkar.