Insurers fear NPS may hit pension biz

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New Delhi, Oct 14 : Even as the Centre is working towards throwing open the government employees’ new pension scheme (NPS) to the country’s entire workforce, some workers are already getting used to the idea of individual retirement accounts with the option to change their asset allocation mixes, as envisaged under the NPS.

Employers, who provide a superannuation pension benefit to their workers over and above the contributions made to the employees’ provident fund, have increasingly started outsourcing the management of these pension and gratuity funds to private insurance companies.

The interim Pension Fund Regulatory and Development Authority has set up an expert group under the chairmanship of HDFC honcho Deepak Parekh to examine the mix of investment options that the NPS should offer to private individuals who become voluntary members. In this context, there could be some learning from the insurers’ experiences with superannuation pension funds.

“Superannuation funds were very much in vogue in the 1980s, when they were managed by the companies on their own. At that time it was a system of defined benefits, which gradually became very expensive to administer and manage. By the late 1990s, many companies switched to a system of defined contributions,” pointed out Amit Gopal, vice-president, India Life Capital.

Post 2006, when contributions over Rs 1 lakh by employers in superannuation funds began attracting fringe benefit tax, more companies moved to a defined contribution plan, which are largely handled by insurance companies.

Companies such as Oracle, Pepsico, American Express and Bata have already switched to private insurers. Also, most gratuity policies have been outsourced—SAIL, United Breweries and Haryana Vidyut Board being some instances.

“Our superannuation products provide tax benefits to both employees and the employer, financial security to the employees and help employers create a well-planned fund,” Vishal Gupta, associate director (marketing) Aviva Life Insurance Company said while enumerating the benefits of companies to move over to such schemes.

The superannuation business continues to be the stronghold of Life Insurance Corporation (LIC), as is the case with most life insurance schemes. With the insurance sector opening up, many private companies have also jumped into the market. Most companies believe the sector has a tremendous growth potential, which is estimated at Rs 14,436 crore for 2008-09 as per a recent IRDA report.