To much of relief to the insurance industry, insurance regulator IRDA has decided to do away with the mandatory 4.5 per cent guaranteed return clause on unit-linked pension scheme.
In a set of draft guideline for pension products, released on Monday, Irda has instead proposed to introduce a norm for mandatory disclosure of assured benefits upfront to the customers.
â€œA pension product shall have an assured benefit disclosed at the time of sale…In absolute terms which becomes payable on the testing date,” the Insurance regulatory and Development Authority (Irda) said
The regulatory authority proposed to modify the guidelines as the earlier norm of assured 4.5 per cent return did not find favour with life insurance companies.
Since the implementation of the guidelines on pension products from September 1, 2010, only five out of 23 life insurance companies came out with pension or Ulip product.
Before September 2010, pension products contributed to 30-35 per cent of overall sales, which fell to 3-4 per cent after new guidelines became effective.
The regulator said insurance companies would provide a minimum return on the premiums paid during the period of contract, which shall be disclosed at the time of purchase of contract.
At the time of sale of policies, the insurer would have to make an illustration of the returns which it is expected to provide, in the range of 4-6 per cent, to the policyholders.
As per the new norms at the time of vesting or surrender, policyholders can withdraw only one-third of the fund value and the rest will be given to the customer in the form of monthly pension.
This feature remains unchanged from the earlier guidelines released last year. The full fund value will be paid only in case of death of the policyholder.
“The move will encourage insurers to bring Ulip pension plans to the market and the guarantee will now depend on market forces,” said G V Nageshwara Rao, chief executive officer and managing director, IDBI Federal Life Insurance Company.