| Aviva Life Insurance Company will not offer immediate annuities in the Indian market until it develops proper statistics on the mortality rate in the country.
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| Despite the entry of new players into the pension business, just a couple of them are offering immediate annuity plans in the country.
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| The falling interest rate environment and the improvement in the mortality rates have resulted in the need to relook at the concept of guaranteeing lifetime income.
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| Speaking to Business Standard on the sidelines of Aviva’s two-day insurance summit in Colombo, the company’s CEO Stuart Purdy said: “We will not offer immediate annuity plans as we have yet to understand the mortality rates before we can pay out pensions over a long term period”.
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| An immediate annuity product offers various choices of monthly lifelong pensions post retirement. Currently, new players are only selling pension products for accumulating the sum, from which an annuity product can be bought at a later stage.
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| Difficulties crop up in the offer of this product in terms of its pricing. Interest rates have fallen by 300 basis points in the last couple of years.
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| This has also seen the state-owned company - the Life Insurance Corporation of India (LIC) - stopping the offer of guaranteeing deferred annuities.
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| Earlier, LIC used to guarantee the monthly pension rate on retirement at the time when policyholders used to buy a deferred pension product.
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| This practice was stopped since the last two years. Furthermore, there are not adequate investment options to deploy long-term funds. There have been talks of introducing 50-year paper in the country.
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| With the mortality rate improving in the country and senior citizens living longer, there is a problem created in the payment of annuities, said Sampad Bhattacharya, senior benefits consultant and chief actuary at Watson Wyatt India.
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| Consultant to many life insurance companies in the country, Bhattacharya said that new players are finding it difficult to tackle the problem and this explains why none are offering any immediate annuity plans.
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| One CEO said: “I will not offer any immediate annuity plans during my tenor as CEO of the joint venture”.
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| Bhattacharya said new players cannot take any call on where interest rates are headed in India, citing the example of Japan where interest rates have turned negative.
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| Voicing his views against the sustainability of government sponsored long term savings plans, Purdy said that products like public provident fund (PPF) do not give customers any investment choice.
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| “While the returns on PPF cannot be matched by any of the players today, making it difficult for us compete, the present returns are not sustainable”. |
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