Pension products set to turn aggressive

The Insurance and Regulatory and Development Authority (IRDA) on Monday issued a draft on pension products exposure for insurance firms.

The regulator will look at revising or scrapping the guaranteed return in its final guidelines.

“Because of the uncertainty over investment returns, that requirement did not find wide acceptance in the market. We have since reviewed the position and propose to expand the option of pension products,” IRDA said.

IRDA has asked for comments from insurers before it comes out with final guidelines on pension plan products, which is expected in a month.

“Since the percentage of guaranteed returns will drop at different levels for different companies, the amount at maturity will differ from every insurer to insurer. This will be specified at the time of sale of product depending on the interest rate scenario, equity growth and other macro economic conditions,” says GN Agarwal, actuary, Future Generali India.

The revised guideline may offer full capital protection and that will be the minimum requirement for insurers.

Anything above the capital amount would be decided by insurance firms seeing the economic factors and market needs.

This will make the pension products competitive in the market.

P Nandagopal, MD and CEO, India First Life Insurance, said since insurers will drop guaranteed returns at different levels, “we can now structure products with various options. This will help the pension market pick its pace.”

Pension products transfer longevity risk from the individual policyholder to an insurance firm.

So the insurance company has to value and manage this risk which often only becomes evident after a long period of time.

“If they scrap this entire guaranteed return phenomenon, it will help the insurance industry a lot in terms of promoting these products as well as improving the market for pension products,” says Kamalji Sahay, MD and CEO at Star Union Dai- ichi Life Insurance.

“Annuitisation on surrender is compulsory and theopen market option does not exist as per the exposure draft. Pension providers have to take longevity risk on annuities,” said Anisha Motwani, director and chief marketing officer at Max New York Life Insurance.