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Pension regulator PFRDA is in talks with insurance regulator IRDAI to explore if variable annuities could be introduced.
The need for variable annuities – where the returns vary according to the market-related benchmark – has all the more increased, given that annuity rates have fallen in line with sharp fall in interest rates in system, said Supratim Bandyopadhyay, Chairman, PFRDA, at the Virtual Actuarial Conclave, organised by the Institute of Actuaries of India (IAI).
“Currently annuity rates are going down and down. There is lot of despondency on prevailing annuity rates among the older generation. I believe the kind of annuities we have, it will not give the kind of benefit that we are thinking about for the superannuated generation in the long run. So, definitely, we have to think about it,” said Bandyopadhyay.
Besides variable annuities, the Pension Fund Regulatory and Development Authority (PFRDA) is also contemplating the introduction of other modes of payout such as systematic withdrawal plan to offset the low rates of annuities, he said.
Currently. the regulatory norms require a person on retirement to invest at least 40 per cent of the retirement funds in annuities.
The PFRDA will soon launch a product that gives minimum assured return.
“We propose to have innovative products to attract more and more customers. Their your (actuaries) inputs will be welcome. The first product we will be targeting is minimum assured return,” he said.
The moment one gives a guarantee, it impinges on the capital adequacy structure, and that is where some skills are required in the design of the product, said Bandyopadhyay.
Pension projection
Similar to the practice in developed countries, the pension regulator now wants to provide pension projection to an NPS subscriber.
He felt that actuaries can play a critical role in the proposed effort of the pension regulator. Meanwhile, Bandyopadhyay also said that in the next few months PFRDA plans to recruit “would-be actuaries” (those who have cleared a certain number of papers in actuarial professional course) to strengthen the functioning of the regulator.
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