DK Mehrotra, managing director of Life Insurance Corporation of India (LIC) of India, said the revised Insurance Regulatory and Development Authority of India (Irda) guidelines that come into effect from September 1, 2010 will ensure that pension products remain true to their name.
“People will now have to buy an immediate annuity as Irda has made it mandatory for people to purchase an annuity. Pensions will now be pension products and not any other investment product,” he told DNA.
Annuity is a product that pays the purchaser a set amount each month until either the death of the policyholder or survivor or for select years depending on the option selected. It is to be bought from any life insurance company from the amount saved under a pension plan.
At present, one can claim 1/3rd of the investment pool saved via pension plan tax free at the end of investing period. The rest can be withdrawn subject to tax.
Under the new guidelines, not only will insurance companies have to offer a 4.5% guaranteed return on pension products, but investors can’t also claim back the entire pension kitty at the end of the saving period.
“No partial withdrawal shall be allowed during the accumulation phase and the insurer shall convert the accumulated fund value into an annuity at the vesting date. However, the insured will have an option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of vesting age,” Irda’s revised guidelines said.
LIC has filed for a new pension plan and a life product, both on the unit-linked platform, with the insurance regulator.
“Pensions are needed in the old age and now the purpose will be served as people can buy annuity from any insurance company. It will be the USP for that specific purpose and we will position it as a pure pension product,” Mehrotra added. Agents too will get a new selling point and a new product all together to sell, he said.
Apart from launching new-guideline-compliant Ulips, LIC will also be repositioning its traditional products, namely Jeevan Anand, Jeevan Tarang.
The firm has collected Rs9,400 crore under the LIC Market
Plus policy, the purchases under which will be discontinued starting August 31, 2010, as the new guidelines on Ulips will kick in from the next day.
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