IRDA chairman admits pension plans were mis-sold

IRDA chairman appears to inclined towards the idea of guaranteed pension product even after scrapping of the 4.5% p.a guarantee. According to him, the pension ULIPs sold prior to 1 September 2010 were mis-sold as it was not really sold for pension needs

The Insurance Regulatory and Development Authority's (IRDA) pension guidelines mandate non-zero guarantee of returns even if it is lower than the 4.5% per annum guarantee offered by pension ULIPs (unit linked insurance plans) sold post September 2010 regulatory changes. Interestingly, IRDA chairman J Hari Narayan believes that the pension ULIPs sold prior to September 2010 were mis-sold as some financial accumulation products without an insurance component.
Making mandatory annuity of two-third of the corpus at vesting time for both traditional and pension ULIPs is another way to ensure customer keeps the funds locked for retirement needs. Pension ULIPs prior to September 2010 did offer lump sum payment (taxable). This option was removed post September 2010 regulatory changes. The window of opportunity was left open in traditional pension products, but it is now closed.

Another important change is not to allow an option for the policyholder to choose the insurer for annuity phase of the product. The same insurer will have to offer the annuity. If it is not the best offer, the policyholder is still stuck with the same insurance company.

There are mixed views from insurance companies on all the regulatory changes with both sides having valid arguments. Having a guarantee and transparency in surrender value will mean high exposure to debt instruments. The locking up of funds into annuity will enforce discipline. All this leads to questions on target segment for the pension product. Will a financially savvy investor buy pension products?

According to Rituraj Bhattacharya, head of market management and product development, Bajaj Allianz Life Insurance, "The pension guidelines will certainly help the masses. People want guarantee for retirement funds. There will be restriction for financially savvy investors who may want high exposure to equity. The average customer will have the incentive of knowing that there is capital guarantee and some returns. The customer may not know the annuity rates at the time of buying the product, but will have some estimate of annuity payment to be received based on the annuity rates at the times of vesting.

"In short, there will be transparency in the product from start all the way to vesting time and beyond for annuity payments."

The masses may have something appealing, but the classes may not have much to look for. It will be interesting to see how much the pension market grows with these new changes. As such, the slump in pension market from 20%-25% of life insurance business down to 3% has hit a nadir.

You may also want to read:

Pension revamped by IRDA-Will the customers stay away? 

vikas batra
1 decade ago
IRDA chief admits pension plans are mis-sold, wait for insurance blunder to go bust,
insurance is day light legalised dacoity
1 decade ago


MATHRUBHUMI report dated 20.11.2011

Office of India infoline raided by the police.

They alleged to have committed offences through the sale of Reliance Insurance. They have reportedly collected Crores of rupees through the sale of Reliance Insurance.
Replied to Das comment 1 decade ago
Chavakkad office of India Infoline raid:

Customers cheated

(Manormama news report)

Customers were given false promises that Insurance policy of Rs. I lakh would be given free.
1 decade ago
Insurance companies bring the products and then pressurize sales team to bring in more and more business by hook or crook. Who is responsible for mis selling -agents or companies themselves.Agents are maligned. Further IRDA from the top see the whole show and keep mum for reasons best known to it.
Mahesh Gore
1 decade ago
apporch is good. But condition to put maturity in pension scheem of same insurer is bad. There must be choice in hands of investor else returns after vesting age will not be compititive.
1 decade ago
Its Good, the regulator realised but too late. The approach should be complete Financial Planning based.
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