Assured return for pension plans 

Life Insurers Must Offer At Least 4.5% Return On Pension & Annuity Schemes 

The insurance regulator has ordered life insurers to offer customers a guaranteed return of 4.5% per annum on pension and annuity plans as part of its new, tighter norms for the sector, a move that is expected to force companies to slash commissions to agents and invest more in government securities. The diktat on guaranteed return was the centrepiece of new rules on unit-linked insurance plans (Ulips) unveiled by the Insurance Regulatory and Development Authority (Irda) on Monday, barely a week after it won back regulatory control over these plans following a bitter battle with markets regulator Sebi. Irda retains the right to review this guaranteed rate according to macroeconomic developments, said Irda member R Kannan, adding that the current guaranteed rate was in sync with macro parameters. For customers, the new Ulip guidelines will mean better returns, but they will nonetheless have to buy more protection with every life policy and now be subject to a fiveyear mandatory lock-in period. Insurance officials say a guaranteed interest rate would force them to have a predominantly debt-oriented portfolio, insulated from the high market volatility that accompanies investments in equities. Until now, over 30% of new business premium for life insurers have come from pension plans, a large part of which has been invested in equities. To provide a guaranteed return, the premium collected under these schemes will have to be invested in fixed-income securities, said IDBI Fortis Life Insurance MD GV Nageswara Rao.

Economic Times, New Delhi, 29-06-2010