Pension product share in overall portfolio drops to 10% from 25%

Companies are fiinding it difficult to offer guaranteed returns as mandated by Irdai

Pension products in the life insurance industry are still in very small numbers. This is because with Insurance Regulatory and Development Authority of India (IRDAI) asking companies to offer guaranteed returns, the companies are finding it difficult to do so. These products, which earlier used to be almost 25 per cent of the overall product portfolio, has now dropped to less than 10 per cent.

“Guaranteed products are being insisted upon. This makes it difficult from a product feature perspective since there could be penalties if the guarantees are not met,” said a senior life insurance executive. He added that due to this, insurers are staying away from these products.

In January 2012, IRDAI had said pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said annuity had to be bought from the same company. These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap was filled after some private life insurers launched pension products.

Industry data showed that there has been a big fall in the premium collection in the pension product space. The overall collection fell to less than Rs 3000 crore in last fiscal compared to Rs 20,000 over five years ago. Further, tough competition from National Pension System (NPS) has also affected sales.

During the last budget, addition exemption of Rs 50,000 was provided for NPS which proved as an attractive tax saving option. Insurers had also sought separate tax provisions for pension products in the budget. However, no such provision was provided for.

Most life insurers feel the guarantee element has made pension products different from NPS, while their fundamental structures are the same. Unlike NPS, service tax is applicable to pension products. Insurers also have to maintain a conservative strategy in terms of investment, to give these ‘non-zero’ returns.