While investment in NPS offers additional tax deductions of Rs 50,000 under section 80CCD, life insurers' pension plans do not enjoy this benefit, making it unattractive for customers.
These measures, experts say, will not only encourage long-term savings but also promote capital formation.
Union Budget 2021 expectations: In a country with inadequate social security, it is seen that along with insurance covers, individuals prefer life insurance solutions for building secure, long-term savings for various life goals and retirement needs.
Having said that, in the wake of COVID-19 pandemic, people’s interest across all types of insurance policies has grown considerably, because of which the insurance sector is hopeful that the Finance Minister will take necessary measures that will help increase penetration and help policyholders.
Pension products offered by life insurers are used by people to have regular income post-retirement to lead a comfortable life.
Kamlesh Rao, MD and CEO, Aditya Birla Sun Life Insurance, says, “From a social security standpoint, both pension products offered by life insurers and NPS are serving the same cause of building a corpus for retirement income. While investment in NPS offers additional tax deductions of Rs 50,000 under section 80CCD, life insurers’ pension plans do not enjoy this benefit, making it unattractive for customers.” Hence, experts say an additional tax deduction of Rs 50,000 in life insurers’ pension plans would make it more attractive to customers.
Industry experts also suggest that the budget could announce measures to bring parity between pension products offered by life insurers and NPS. Additionally, life insurers offer annuities as retirement income, for which they generally invest the fund in government securities for a long-term guaranteed return, which also plays a significant role in nation-building.
Rao says, “Government should increase the supply of long-dated (40-50 years) bonds for increased liquidity in the market. It should further develop the corporate bond market, where insurance companies can source long-term, creditworthy or enhanced corporate bonds, and generate better long-term yields for such annuity plans.”
These measures, experts say, will not only encourage long-term savings but also promote capital formation. An expand (?) in the bond market is also expected from the Union Budget 2021, which will likely generate better yields and thereby help individuals to amass greater sums for their retirement and better social security.