IDBI Federal Retiresurance pension ULIP target unclear

IDBI Federal Retiresurance Milestone Pension Plan is a single-premium pension ULIP. Only Life Insurance Corporation of India has come out with a regular premium pension ULIP after the 1 September 2010, ULIP changes by Insurance Regulatory and Development Authority (IRDA). All other pension ULIP products offered today are single-premium which helps insurers to be on the safer side for guaranteeing 3% to 6% returns per annum. If this product had been launched last year, it may have got some response. In the current high interest rate scenario, it is unlikely to evoke interest. The minimum premium is a hefty Rs1 lakh. The premium allocation charges (0.50%pa) and policy administration charges (0.1% p.m. for five years and Rs60 p.m. thereafter) are on the lower side. These charges are zero for premium of Rs25 lakh and above. There will be fund management charge of 1.25%pa and investment guarantee charge of 0.25%pa.

One of the investment options of the product is 0%-10% exposure to equities and equity-linked instruments, but it also means that the company will take a conservative approach to be able to offer guaranteed returns. IDBI Federal recently launched a traditional pension plan called Retiresurance Guaranteed Pension Plan which may give better returns than the pension ULIP. If a customer chooses a 25-year term, the current rate for 25-year government securities (8.6%) will be guaranteed for the company’s traditional pension plan. IRDA will come up with changes to pension ULIP regulations soon. This is because pension ULIPs are not selling. The customer will be better off waiting for the future regulatory changes.

Insurance authority will carry on regulating pension schemes

The Insurance Regulatory and Development Authority (IRDA) will continue to regulate pension schemes offered by insurance companies, said IRDA Chairman J. Harinarayan.

The statement assumes significance in the wake of reports that the Pension Fund Regulatory and Development Authority (PFRDA) have been making efforts to bring pension schemes of insurance companies under its fold.

A revised PFRDA bill was tabled in Parliament during the last budget session, according to which it will regulate pension products under the new pension scheme.

Mr. Harinarayan said pension schemes handled by insurance companies had dipped from 25 per cent to about 17-18 per cent.

Currently, Rs.36,000 crore worth of pensions were being handled by the companies, Mr. Harinarayan told presspersons on the sidelines of a three-day summit on ‘Transforming Healthcare with IT 2011', here.

Insurers wait for norms on pension products

Life insurers are waiting for revised guidelines from the Insurance Regulatory and Development Authority (Irda) before they can come out with regular unit-linked (Ulip) pension products.

Sales of pension products, which have been growth drivers for life insurers and were among highest selling products, have fallen in the absence of products on shelf for sale. Only LIC has regular Ulip pension product. Private insurance companies are selling traditional pension products, which are non-transparent and often have high charges.

Few private players such as HDFC Life, ICICI Prudential Life have launched single premium Ulip pension plan.

Since September 1, 2010, new guidelines from Irda came into effect, which mandated all Ulip pension products to offer a minimum guarantee of 4.5(%) per cent.

Despite these guidelines being in place for over 10 months, no private life insurance company has launched a product. Insurers say that they have not been able to calculate a profitable formula to design such a product.

“Offering guarantee on regular Ulip pension has create asset-liability mismatch. No one can guarantee minimum return of 4.5(%) per cent. What if the interest rate is low in debt products or equity is not giving good return. We are waiting for Irda to make changes in the guidelines,” said Sunil Sharma, head- actuary, ICICI Prudential Life Insurance.

“We are waiting for new guidelines on pension plans. It is an important product category. Irda has also understood that none of private players have come out with a product due to though guidelines. Changes are expected soon,” said a senior official of a private insurance company.

Irda is working on new guidelines and expected to come out with final version within a month.

As per the latest data, individual new business premium collected by life insurers stood at Rs 69297 crore during April-February compared with Rs 62914 crore a year ago.

Irda to carry new pension norms in April

After unit-linked pension products disappeared from the market following an imposition of guaranteed returns of 4.5(%) per cent, the Insurance Regulatory and Development Authority (Irda) has decided to revise the pension norms in April.

“Since companies are busy this season, we have decided to come out with new guidelines in the next financial year. We will issue the draft guidelines in April,” said a senior Irda official. In the new guidelines too, the regulator will ensure the capital of policyholders was protected.

He said the existing guidelines were not liberal and the revised ones would give some flexibility to the insurers. It would look at protecting premium along with adding some returns.

“Guarantee at this level is unachievable and is the main reason for drop in sales,” the official added.

New product offerings have declined following the introduction of new rules in September. While only the Life Insurance Corporation (LIC) of India launched a regular unit-linked pension product, others like ICICI Prudential Life Insurance launched unit-linked pension plans on a single-premium stage.

Most insurers say offering 4.5 (%) per cent on one-time premiums is possible compared to long term. Also, a single-premium pension product does not provide long-term protection.

Returns on pension products have been linked to the reverse repo rate and insurers have to offer an additional 50 basis points over the same.

Given the recent rise in reverse repo rate, the returns on unit-linked pension plan are likely to be 5.5-6(%) per cent for 2010-11.

“We have not launched any pension product as we do not believe in offering a guarantee of 4.5(%) per cent. Capital guarantee would be a welcome option and would give us some flexibility,” said a senior executive of a life insurance company.

Last year, pension products constituted 20-25(%) per cent of the total premium collected by the industry. Around Rs 65,000 crore came from the sale of pension products. Total premium rose 18(%) per cent to Rs 2, 61,025 crore.

With only a few players selling the product, it has fallen appreciably.

Insurance firms not offering new pension plans

Life insurance companies are shying away from launching new pension plans following new norms, which mandate that all unit-linked pension plans will have to offer a guaranteed return of 4.5(%) per cent. Most life insurance companies have not launched any new unit-linked pension plans after the new ULIP guidelines came into effect from September 1. Life Insurance Corporation of India's Pension Plus is the only unit-linked pension plan now on offer in the market.
Companies said the guaranteed return regime would force them to move away from equities and increase debt exposure, which may affect profitability.
It was launched on September 2. Pension products constitute 20-25(%) per cent of the total premium collected by the industry. During the last financial year (2009-10) around Rs 65,000 crore came from sale of pension products --- representing a quarter of the total premium collection of Rs 2,61,025 crore.
Firms also said that to provide a guaranteed return of 4.5(%) per cent, companies would have to earn about 6.75(%) per cent to 7(%) per cent.
“This guaranteed (4.5 per cent) return is valid on maturity date for policies where all due premiums are paid. Mortality and, or health cover could be offered along with the pension/annuity products as riders, giving enough flexibility to policyholders to choose covers of their choice,” the IRDA guidelines said.
Insurance companies said an underdeveloped long-term debt market offers limited options for them to park their money that would ensure a steady risk-free return for tenures extending up to 30 years.
“For long term investments, the best returns can be earned through equity but with the guarantee, life insurance companies would have to invest in debt instruments and that pose some problems,” a Max New York Life spokesperson told Hindustan Times.
“We are evaluating the pension market in the light of the new regulation and seeing when we can launch a pension product,” Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance however said.
An annualised return of 4.5(%) per cent does not compare well with other long-term savings instruments. A savings bank account offers 3.5 per cent, while the employees’ provident fund raised interest rates to 9.5 per cent for 2010-11. A PPF subscriber earns 8(%) per cent per annum.
“At 4.5 per cent guaranteed return (for unit-linked pension plans) even customers may not find it attractive,” a senior executive of a Mumbai-based life insurance company said, requesting anonymity

Pension Plus scheme with guaranteed return | LIC

Life Insurance Corporation (LIC) plans to launch a unit-linked pension scheme – LIC Pension Plus.

Unique Features:
• Minimum rate of interest of 4.5% is guaranteed, after maturity, one-third of the corpus can be withdrawn as a lumpsum amount.
• The remaining two-thirds would be paid in either monthly or half-yearly installments after maturity, as decided by the policy holders.
• The Pension Plus policy is in line with the Insurance Regulatory and Development Authority's latest ULIP guidelines.

The Pension Plus plan Options:
1. Debt fund and
2. Mixed fund.
Under the debt fund, not less than 60% of the corpus would be invested government securities, while the remaining 40% would go into money market instruments.

Under the mixed fund plan, the investment in government securities would not be less than 45%, while 40% would go into money market instruments and 15-35% into equities.

Eligibility:
• This insurance plan can be subscribed by any one between 18-75 years of age and,
• The minimum maturity period is 10 years.

Reliance Life launches retirement plan with guaranteed income

Reliance Life Insurance Company (RLIC) on Monday announces the launch of Reliance Life Traditional Golden Years Plan, a non-linked pension plan joined with guaranteed returns.

The launch was announced by Malay Ghosh, executive director and president, Reliance Life Insurance, in Mumbai on Monday.

“The Reliance Life Traditional Golden Years Plan is the first traditional retirement plan that offer advance guaranteed returns on investments, time-on-time, as a key differentiator in the pension market. It helps policyholders keep systematically and make the much-needed corpus to make a worry-free retirement life,” said Mr.Ghosh, adding, “This is the only traditional pension plan in the market which caters to the require for guaranteed returns at retirement. With Reliance Life Traditional Golden Years Plan, we are providing an easy yet successful gateway for customers to make their retirement fund for a financially-secured retired life.”

Reliance Life Traditional Golden Years Plan is a regular premium Retirement plan that provides guaranteed return, which is confirmed at the commencement of every financial year during the product term. The buildup rate for financial year 2010-11 is 7.75(%) per cent per annum. “The minimum guaranteed growth rate will not be less than the savings bank deposit interest rate, as confirmed by the Reserve Bank of India,” he said.

The Reliance Life Traditional Golden Years Plan is one of the little pension products, which offers a separate account - Accumulation Account - for each policyholder to keep their guaranteed investment returns for every year and release all charges made by the insurer. “The rationale behind maintaining the separate account is to show intelligibility,’’ said Mr Ghosh.

The new retirement plan is available for people across different age groups starting from 18 years till 75 years with all payment options available -- monthly, quarterly, half-yearly and yearly. However, the vesting age varies between 45 and 85 years.

Apart from the maturity and tax benefits, Reliance Life Traditional Golden Years Plan also offers tax-free commutation up to one third of fund value at the vesting age and the customer can purchase an annuity with the balance amount from RLIC or any service contributor.


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