An implicit guarantee of non-negative returns in all pension products is likely to attract investors. A look at some other changes initiated by Irda.
All non-linked insurance pension products will now come with insurance cover throughout the deferment period, or else, will have to offer riders. The sum of all the rider premiums of such a product will not exceed 15% of the premium paid for the policy. Also, such rider premiums will have to be separately accounted for and will not be included in arriving at the assured benefit.
The Insurance Regulatory and Development Authority (Irda), in a Gazette, has said that all individual pension products will have explicitly defined assured benefits, which will be payable on death or vesting. The defined assured benefit will have to be disclosed at the time of sale of the pension product and will be utilised on the investing date, or on the date of death.
If a policyholder surrenders the policy, he will be allowed to commute the amount to the extent allowed under the Income-Tax Act and, to utilise the balance amount to purchase immediate annuity from the same insurer. The annuity will be guaranteed for life at the prevailing rate. The policyholder will also have the option to utilise the entire proceeds to purchase a single premium deferred pension product from the same insurer. Also, Irda has mandated insurance companies to extend the accumulation or deferment period of the policy with same terms and conditions, provided the policyholder is below 55 years.
If the policyholder dies during the deferment period, the nominee can utilise the entire proceeds of the policy or a part of it to purchase an annuity at the prevailing rate from the same insurer or withdraw the entire proceeds of the policy.
Before selling a pension product, the insurance company will have to do a need-based analysis. An illustrative target purchase price for each policyholder, explaining the premium payment capacity, vesting age and future expected conditions, will have to explained to the customer. Insurance companies will have to send yearly disclosure to each policyholder on April 1 each year, indicating the current accumulated or available amount, the expected accumulated or available amount on the date of vesting on the basis of the prevailing and the likely assumed economic and demographic environment, with the caveat that the projected rates will not reflect any guarantee. ?Likely annuity amounts based on the prevailing annuity rates and on assumed interest rate of 4% and 8% per annum, with the caveat, that the projected rates shall not reflect any guarantee,? says the Gazette.
All linked pension products will also have to explicitly define the assured benefit that will be payable on death or vesting and the defined assured benefit will have to be disclosed at the time of sale.
In linked pension products, no partial withdrawal will be allowed and all individual linked insurance and pension products will acquire a surrender value. If the linked insurance product acquires a surrender value during the first five years, it will become payable only after the completion of the lock-in period. After the lock-in period, the surrender value will be at least equal to the fund value or the policy account value as on the date of surrender.
For all pension products, insurers will have to create a discontinued policy fund or discontinued policy account where each of these funds or policy accounts will comprise all the discontinued values of the policies and will have to give a minimum guaranteed interest rate of 4% per annum.
At the time of vesting, the policyholder can either commute a part of the fund and utilise the balance amount to purchase annuity with the same insurer, which will be guaranteed for life at the prevailing interest rate.
The insurer will deduct a premium allocation charge, which will be explicitly stated and could vary by the policy year in which the premium is paid. There will a fund management charge, which will be levied as a percentage of the value of assets and will be deducted by adjusting the net asset value (NAV). Insurers will levy a guarantee charge, which will be a percentage of the value of assets and will be deducted by adjusting the NAV. Insurers will also levy switch charge, policy administration charge, mortality or morbidity charge.
Pension products have undergone a lot of changes after the regulator mandated a 4.5% guarantee rate in 2010. After that, all life insurers withdrew their products and there was not a single pension insurance product in the market for more than a year, which accounted for over 20% of all life insurance products sold. Analysts say the implicit guarantee of non-negative return in all pension products will be a positive for policyholders and will encourage investors to look at pension policies.
In a nutshell
*All non-linked insurance pension products to now come with insurance cover throughout the deferment period, or else, to offer riders
*The sum of all rider premiums of such a product not to exceed 15% of the premium paid for the policy.
*Such rider premiums to be separately accounted for and not to be included in arriving at the assured benefit
*All individual pension products to have explicitly defined assured benefits, payable on death or vesting
*The defined assured benefit to be disclosed at the time of sale of the pension product and be utilised on the investing date or on the date of death
*If a policyholder surrenders the policy, he will be allowed to commute the amount to the extent allowed under the Income-Tax Act and, to utilise the balance amount to purchase immediate annuity from the same insurer
*The annuity will be guaranteed for life at the prevailing rate
*The policyholder will have the option to utilise the entire proceeds to purchase a single premium deferred pension product from the same insurer
*Irda has mandated insurance companies to extend the accumulation or deferment period of the policy with same terms and conditions, provided the policyholder is below 55 years
*If the policyholder dies during the deferment period, the nominee can utilise the entire proceeds of the policy or a part of it to purchase an annuity at the prevailing rate from the same insurer or withdraw the entire proceeds of the policy.