What do you want from your pension plan-a guaranteed return at the end of the maturity period or substantial capital appreciation through investment in equity-linked products? If you are looking for the latter, ulip
(unit-linked insurance plan) pension plans may not be the ideal investment choice for you.
The Insurance Regulatory and Development Authority (IRDA), in its new regulations on ulip pension plans
, has said that while it doesn't want to fix a guaranteed rate of return on pension plans, it wants some guarantee in absolute terms at the maturity of the pension plan, a condition which, according to Andrew Cartwright, chief actuary, Kotak Life Insurance, may "result in some conservatism in the investment portfolios offered."
What it means is that insurers have to provide a minimum guaranteed maturity benefit in absolute terms and the amount of guarantee has to be disclosed at the time the policy is purchased. Insurance companies would be free to decide the kind of guarantee they would like to provide. The assured return provision would, however, force insurers to opt for a more debt-oriented portfolio.
Earlier, the insurance regulator had benchmarked the minimum guaranteed return on pension plans to the reverse repo rate-the rate at which the Reserve Bank of India borrows from banks-prevailing in the year before the maturity of the plan. Insurance companies found the clause too tough to follow and stayed away from launching pension plans. Though the new regulations look less stringent compared to the earlier ones, insurers still feel any guarantee in unit-linked pension plans does not make sense.
"It is bad for investors as insurers will launch products with limited equity exposure, depriving investors of much of the benefits of capital market appreciation," says GN Agarwal, chief actuary, Future Generali Life. However, some industry players feel that pension plans being long-term products, some kind of guarantee is necessary.
"Considering that accumulation for pension happens over a long tenure, retaining some guarantee for the policyholder is a good measure," says V Srinivasan, Chief Financial Officer, Bharti AXA Life.