New pension guidelines will be applicable to both linked and non-linked plans.
Though guarantees on pension products would remain, insurers would now have more flexibility. According to the final guidelines on pension products released by the Insurance Regulatory and Development Authority (Irda), insurers have the option of choosing between offering either positive returns on premiums paid during the period of the contract, and guaranteed maturity benefits.
“The second option — guaranteed maturity benefits — would be more attractive to customers. But insurers would take a cautious approach towards investments if they have to give guarantees, and returns are likely to suffer,” said Aneesh Khanna, senior vice-president, IDBI Federal Life Insurance.
In early 2010, Irda, in its pension guideline, had proposed a minimum guarantee of 4.5 per cent, linked to the reverse repo rate. However, the industry had boycotted the norm, with no new pension products introduced last year.
The guideline also specifies at the time of vesting, the annuity to the customer shall be provided by the same insurer which had contracted the original pension policy. Experts say by doing this, Irda is restricting the customer's choices in selecting the best rate from the open market at that particular time, since annuity rates between companies would differ.
The insurance regulator has also asked companies to make more disclosures to help customers take informed decisions. At the time of a sale, all pension products would have to explicitly define the assured benefits applicable in case of death, surrender or vesting.
Pension products would now be available on all individual and group unit-linked pension products, all individual and group non-unit-linked pension products and variable insurance pension product platforms. This means pension products would be applicable to traditional plans as well.
The new guidelines would be applicable from December 1, and products that do not conform to the new norms would have to be withdrawn after January 1.
“Pension products offered by insurers may have an insurance cover throughout the deferment period, or may offer riders. The sum of all rider premiums attached to the pension product shall not exceed 15 per cent of the premium for the pension policy,” the guidelines said.
Insurers had launched many traditional pension products after the minimum returns on them were made compulsory. Many traditional pension plans launched in this period saw good sales, owing to the absence of other choices. Insurers did not launch new unit-linked plans after the earlier ones were withdrawn, since these felt giving a guarantee on minimum return was not a viable option.