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| Forget about pension plans, there's none available anyway |
| Niladri Bhattacharya / Mumbai Jan 05, 2012, 00:46 IST |
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 If you plan to buy a pension plan as a part of your tax-saving exercise, you need to wait. The reason is simple: there are just no pension plans available in the market.
This strange situation is the result of two developments: one, the insurance regulator has not approved any new pension products since November, when it came out with new guidelines on such products; and two, it had asked all insurers to withdraw all existing pension plans by January 1 this year.
“The new guidelines would be applicable from December 1, and products that do not conform to the new norms would have to be withdrawn before January 1,” the regulator, Irda, had said in November while issuing new guidelines that mandated compulsory annuity and an element of guarantee in the plans.
An HDFC Life official said after the new guidelines came into force, every company had to refile pension products to conform to the changes. However, the regulator is yet to approve a single product till now. Hence, with all the existing products withdrawn from January 1, there are no pension products to offer to customers at this point.
Life Insurance Corporation of India (LIC), ICICI Prudential Life, Bajaj Allianz Life and Future Generali Life confirmed that. “We are waiting for our products to be approved. There is no deferred annuity product in the market right now,” said a senior official at LIC.
To avoid the impasse, some insurers had requested the regulator to allow them to continue with the existing pension products till new ones were approved. The request was turned down.
The timing could not have been worse. According to data collected by Life Insurance Council, premiums collected from pension plans slipped to Rs 597 crore in the first six months of the current financial year, compared to Rs 17,675 crore during the same period of the previous financial year. Also in terms of number of policies issued, the share of pension plans has dropped to a mere 0.36 per cent in the first six months of the current financial year, compared to 16 per cent in the corresponding period a year ago.
This was mainly due to new regulations on pension products mandating a minimum annual guarantee of 4.5 per cent, which came into force in September 2010. Following that, unit-linked pension plans disappeared from the market and no new unit-linked pension products were introduced after that. Only pension plans on the traditional platform were available.
| PENSION MESS |
| Individual new business premiums (Rs crore) |
| |
‘08-09 |
‘09-10 |
‘10-11 |
Apr-Sep
(‘10-11) |
Apr-Sep
(‘11-12) |
| Pension premium* |
16,524 |
26,389 |
19,257 |
17,675 |
597 |
| Total premium* |
69,364 |
81,690 |
82,294 |
40,821 |
24,152 |
| Share of pension plans (%) |
| In total premium |
23.82 |
32.30 |
23.40 |
43.00 |
2.47 |
| In total policies issued |
10.13 |
12.16 |
7.28 |
16.71 |
0.36 |
| *New premium collection Source: Life Insurance Council |
Consequently, in the revised guidelines, Irda has withdrawn the 4.5 per cent guaranteed returns, but maintained there must be some guarantee element with the plan either by way of offering positive returns on premiums paid during the period of the contract, or assured maturity benefits. However, this failed to revive the pension plan market, which once constituted more than 32 per cent of the sales of life insurance companies.
Since September 2010, the life insurance industry has seen a decline in premium collection growth. The industry has failed to arrest the slide in the current financial year as well. During April-November, premium collections fell 19 per cent to Rs 62,428.86 crore from Rs 76989.88 crore in the same period a year ago. For LIC, the collection was down 17.57 per cent whereas for its private peers, the collection was down 22.38 per cent. LIC collected Rs 45,758.98 crore by writing new policies while private insurers collected Rs 16,669.88 crore.
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