Pension products of insurance companies may see an overhaul once again as the insurance regulator is linking them with annuity. Insurance companies will now have to provide non-zero positive rate of return on the premium paid and an absolute amount will have to be paid on death or maturity. The amount of such a guarantee will have to be disclosed at the time of purchase of the contract.
All pension products will be offered either as individual-linked pension or group-linked pension products. They will have explicitly defined assured benefit payable on death and vesting. The defined assured benefit will have to be disclosed at the time of sale and utilised on the vesting date or on the date of death.
The Insurance Regulatory Development Authority’s (Irda) draft exposure on standard products has said that all pension products offered by insurance companies will have an insurance cover throughout the deferment period, or may offer riders. The sum of all the rider premiums attached to the pension product will not exceed 15% of the premium paid for the pension policy. Such rider premiums will be separately accounted for and will not be included in arriving at the assured benefit.
For financial planning, any pension product offered by insurer will have to comply with the sales literature guidelines issued by the Life Insurance Council. An illustrative target purchase price for each policyholder will consider the premium payment, capacity, age, vesting age and the future expected conditions. The policy will have to mention any possible risks involved in purchasing the targeted pension rate in meeting the targeted purchase price. The policy will also have to give an illustrative target annuity/pension rates for the target purchase price.
Policyholders will have to be given a yearly statement, in addition to the benefit illustration, which will have to mention the current accumulated value or the available amount.
The expected accumulated amount on the date of vesting will be on the basis of the then prevailing rate and the assumed economic and demographic environment. The likely annuity amounts will be vested on the then prevailing annuity rates and on assumed interest of 4% per annum and 8% per annum with the caveat that the projected rates will not reflect any guarantee.
On the date of vesting, the policyholder can either commute the amount to the extent allowed under Income Tax Act and utilise the balance to purchase immediate annuity with the same insurer that