Pension products might take a little longer to be counted among big contributors to the portfolio of life insurers. These used to be 25% of the total offerings and now down to single digit. While life insurers have started introducing new products in this segment, insurers admit they are at a disadvantageous position, compared to the New Pension System (NPS) by the Pension Fund Regulatory and Development Authority (PFRDA).
In January 2012, the Insurance Regulatory and Development Authority (IRDA) had said that pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said that annuity had to be bought from the same company.
These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap filled after some private life insurers launched pension products.
Most life insurers feel that the guarantee element has made pension products different from NPS, while their fundamental structures are the same.
Unlike NPS, the service tax is applicable to pension products.
Insurers say that reasons which are restraining life insurers from competing effectively in the pension space include, insistence on annuity being bought from the same insurer, no partial withdrawals allowed etc.
With the current regulations in place, insurers are not comfortable offering non-zero guarantee for pension.
Insurers had shied away from introducing pension products due to the guarantee return requirement. NPS is not mandated to offer these returns. And that skews the pension playing field. So selling pension on the insurance platform is that much more difficult and requires the building of significant pool, say insurers.
Insurers say that they also have to maintain a conservative strategy in terms of investment, to give these non-zero returns.
Insurers say that until these challenges are addressed, pension growth is likely to remain muted.
Life insurers are also planning to take up this issue with the IRDA. Insurers will request the IRDA to make pensions at par with NPS.
However, insurers are hopeful that these issues will get resolved as they move ahead.
With the right nudge, insurance companies can make a significant contribution in pensions since they have the distribution backbone to reach these products to a large audience, say insurers.