Irda has partial rethink on pension plan change

Buyers may get to choose life or health cover with pension plan.

Policyholders may soon get the option of choosing either life or health cover with a pension plan.

After deciding to bundle pension plans with life covers (this was to apply from July), the Insurance Regulatory and Development Authority (Irda) has had a partial rethink.

“Either life cover or health cover will be made compulsory with pension plans. The industry players have expressed concern over recent changes in pension plans after these and life cover were bundled,” said a senior Irda official. In addition, the insurance regulator may ask for a minimum guarantee with these plans. “There may be a minimum guaranteed benefit with unit-linked pension plans (Ulips). For instance, insurers may have to ensure a return of one per cent over the savings bank rate,” added the official.

At present, life covers are optional with pension plans. Irda had proposed to mandate life cover with pension products. It also proposed that partial withdrawals would be banned during the term of the policy. These changes were to apply from July. However, partial withdrawal may not be allowed even in the final guidelines.

The matter will be discussed at the insurance advisory committee meeting on May 28.

In the life insurance council meeting yesterday, chief executive officers of insurance companies gave their feedback on these changes. “The changes will depend on feedback from insurers,” the official added.

Insurers are worried that sales from pension plans may fall if Irda’s plan is implemented fully. “There will be no incentive to buy a pension plan. People will prefer buying pure Ulips or term plans over pension plans, since there is no flexibility. The other disadvantage is a person cannot withdraw from the fund even in an emergency,” said Sanjiv Pujari, actuary, SBI Life.