Private comapnies set to launch pension products

It has been more than a month since the new guidelines on pension products have been put in place, but still there is only one pension product in the market to opt for - from the Life Insurance Corporation.

What gives? The main obstruction is a new rule which says a pension product should guarantee a return of 4.5% to the investor.
But now, it seems private players have worked their way around it.
While ICICI Prudential is waiting for the approval from the Insurance Regulatory Development Authority (Irda), others are in the process of finalising their offerings.

“The investment strategy will have to take care of the 4.5% guarantee and ensure that the risk management is adequate,” said Sandeep Bakhshi, managing director and chief executive officer, ICICI Prudential Life Insurance.

Speaking on the sidelines of the 13th Insurance Summit in Mumbai, he said ICICI Prudential’s product should hit the market soon.

Before September 1, 2010, almost all life insurers had their pension products which had to be withdrawn when the regulator asked for a guarantee of 4.5% to the investor.

“A customer won’t be happy with just that 4.5% guarantee, there has to be a way for optimising the return and we are working towards it,” said Mayank Bathwal, chief financial officer of Birla Sun Life Insurance.

But assuring a return of 4.5% is not easy considering the current market for long-term investments in India, say experts.
“The market for making long-term investments is not very deep in India,” said Bathwal.

Says Rajesh Sud, managing director and chief executive officer at Max New York Life, “When we are thinking about long-term investment to guarantee such a return, then some equity exposure is desirable and the minute you put that in, the guarantee becomes a little risky.”

But sooner or later there will be more options available for people who want to start investing for future returns.

“Certainly there will be more pension products available in the market, it’s just the matter of prioritising,” said Sud. He also confirmed that his company is in the process of evaluating the investment strategy.