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If you are planning to invest in a unit-linked pension plan, you will soon have more choice of products with a possibility of higher yields.
“We want to expand the portfolio of pension plans. Every product will continue to have a minimum guarantee for the policyholders,” Mr Hari Narayan, Chairman, Insurance Regulatory and Development Authority (IRDA), told Business Line .
Since the new regulatory regime for Unit Linked Insurance Plans (ULIPs) from September 1, 2010, there is only one pension product with a minimum guaranteed annualised return of 4.5 per cent on maturity as of now.
According to industry feedback, the existing product is attracting neither policyholders nor insurers.
To offer a minimum guarantee, the insurers are setting aside 5-6 per cent of every premium as a reserve and are only investing the rest, mostly in the government instruments which offer not higher than 8-9 per cent interest, to play safe.
From a policyholder perspective, this kind of traditional investment pattern may not be attractive over a long period of time in view of the lesser returns.
As per IRDA data, since September 2010 till date, the sales of unit-linked pension plans have been less than a lakh, which explains lack of interest both from the policyholder and the insurer in this segment.
“The set of products we are planning to bring in will have more flexible guarantee options in the place of existing one on maturity,” the IRDA Chairman said.
There could as well be a combination of guarantees to suit varied perspectives of customers on risk and returns from a long-term product.
Choice-based exposure
Once introduced, the new norms on pension products would allow a pension plan policyholder to have a choice-based exposure to equity market in the expectation of a higher return.
The trade-off however would be a minimum guarantee of 4.5 per cent on maturity (which also is linked to the reverse repo rate as insurers should offer 50 extra basis points over this as return), as the minimum guarantee clause is likely to be ‘tweaked' by the IRDA.
“Whatever may the product, there will be minimum guarantee on the capital to ensure policyholder protection,” Mr Hari Narayan said, while not sharing exact details.
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