a leaf out of the Telecom Regulatory Authority of India
(TRAI), the Insurance Regulatory and Development Authority
(IRDA) has designed a pension policy and calls it Standard
as in the case of the telecom industry, there are no compulsions
on the part of life insurers to offer this scheme as an
about the lack of awareness among the public about the
growing importance of retirement savings on the one hand,
and the lack of suitable and acceptable pension plans
in the market on the other, the authority wanted to frame
a standard, simple plan with a uniform technical structure
to be sold by all life insurance companies.
committee was set up under the chairmanship of N K Shinkar,
consulting actuary, IRDA, with several actuaries as members.
what is interesting is the timing of the standard plan
announced by IRDA. The government had earlier announced
its intention to set up a separate pension regulator.
All these years IRDA has been demanding to regulate the
pensions sector as and when it is thrown open.
IRDA pension plan
Any body who is aged between 18 and 60 years has to make
regular and periodic payments to a life insurer for an
agreed period. Upon attaining the vesting age (the age
chosen by the policyholder: between 50 and 70 years) the
accumulated sum will be given to the policyholder for
buying annuity from any life insurance company to get
a steady income during retired life.
to IRDA, life insurers are free to offer additional features,
say life cover to its standard plan for extra charge.
The minimum contract term will be five years and the plan
allows deferment of vesting age by five years once during
the policy period.
to the IRDA plan the contributions will be structured
to provide an accumulated fund for buying an annuity,
which is envisaged at a minimum of Rs 6,000 per year (equivalent
of Rs 500 per month). This will be reviewed by IRDA regularly
to keep it in line with the cost of living index.
The minimum annual contribution by the policyholder will
be Rs 3,000, payable in one or more instalments. Contributions
can be made to the insurance company chosen by the policyholder
through select banks. Individual companies may choose
to cap the maximum annual contribution.
the vesting age, the product is an investment linked one
that offers smoothing of investment returns and some guarantees,
provided that benefits are taken at the vesting age.
a policyholder takes the benefits before the vesting age,
then the insurance company has the right to base benefits
on unsmoothed investment returns in order to protect the
interests of other policyholders.
insurance company will issue an annual statement to the
policyholder showing the accumulation to his credit as
at the end of the year in the Policyholder Fund. This
statement will also show the contributions received and
charges debited and income credit during the year.
committee has recommended that the capital value of the
contributions of the policyholder less charges (expense
and mortality related), as also declared income additions,
to be guaranteed for payment on the chosen vesting age
as also on the death of the policyholder.
who canvass this business will be paid a commission of
7.5 per cent on the first year contribution and 2 per
cent on subsequent contributions. The plan allows for
2 per cent administrative charges per year (for the first
five years of the policy) on the amount lying in the credit
of the Policyholder Fund. From the sixth year onwards
the charges comes down marginally.
on vesting age
On attainment of the vesting age the policyholder will
have the option of taking as a lump sum, up to 25 per
cent of the accumulated amount, to his credit in the Policyholder
Fund, subject to the existing tax laws.
s/he can draw an income from the accumulated corpus directly
at a predetermined rate annually, if he so wishes, and
for a predetermined period. With the balance amount, he
can take a conventional life annuity.
the policyholder were to die before the vesting age, the
spouse of the policyholder will have the option to take
up to 50 per cent of the policy proceeds in a lump sum
and have the balance amount converted into a conventional
annuity on his/her life, subject to some terms. Other
options are also available.
The tax liability on the benefits payable is the responsibility
of the policyholder to settle with income tax authorities.
According to the Shinkar committee, IRDA should try to
get the plan approved for tax benefits under section 80
(CCC) and section 10 (23)(AAB) of the Income Tax Act.
has also recommended that the 9-per cent income guarantee
subsidy announced for the Varishta Pension Bima Yojana
be given to this plan also.
recommendations include that IRDA should try to obtain
for this plan additional tax concessions such as tax-free
pension up to a limit, index linked bonds from the government
to enable guaranteed real returns to the policyholders
and also a waiver of the policy stamp duty.