Chennai: Putting an end to the suspense as to the authority to regulate the pensions sector as and when it is opened up, Finance Minister Jaswant Singh has announced the setting up of a separate pension fund regulatory and development authority.

The Insurance Regulatory and Development Authority (IRDA) was earlier angling to regulate the sector on the grounds that the pensions pay-out have to be by life insurance companies.

“This will put the clock back by at least six months as the new person will take at least six months to study and understand the complexities of the pension reforms,” says AMP Sanmar Life Assurance Company CEO S V Mony.

In the meantime, at a period when the life insurance industry is moving away from guaranteed return schemes, the finance minister has bowled a googly by announcing a pension scheme that assures returns.

As per the scheme to be administered by Life Insurance Corporation of India (LIC), citizens aged 55 paying a lump sum can buy a monthly pension equivalent to return of 9 per cent for life. The minimum monthly pension will be Rs 250 and the maximum will be Rs 2,000.

Singh announced that the government will compensate LIC the difference if the yield falls short of 9 per cent. “It is actually an aberration in the current scheme of things.”

Reacting to the proposal, ICICI Prudential Life Insurance Company CEO and managing director Shikha Sharma says: “As a private life insurance player, we’re disappointed in not been given the opportunity to participate in the mass pension scheme. Private players have done much to expand the retirement solutions market, reflected in their combined market share of over 30 per cent. ICICI prudential, for one, would have been happy to have an opportunity to participate in this mass pensions segment.”

Adds Om Kotak Mahindra Life Insurance Company vice-president (marketing) Ashutosh Bishnoi: “We believe that LIC alone cannot achieve the level of penetration that this scheme requires. All private sector life insurers should be allowed to offer this scheme as well for its long-term success. Limiting the special scheme to LIC would result in an uneven playing field.”

Even in the matters of taxation, the budget has not been up to the expectation, complains the private players ().

“The biggest impetus that was sought is the increase in Section 80CCC(1) limits from the current Rs 10,000, which would incentivise greater long-term savings into pensions. The current level of Rs 10,000, if saved each year from age 30 to age 58, only provides an annual annuity of about Rs 2,400, much too low to meet the basic post-retirement expenses of an average Indian,” argues Sharma.

Avers Birla Sun Life Insurance CEO Nani Javeri: “We are extremely disappointed with the amendments proposed in Section10 (10D) and Section 88 of the Income Tax Act. We appeal on behalf of the industry that the same be reviewed. The announcement for the creation of the new pension fund regulatory authority and increase in service tax to 8 per cent will have an impact on the industry, the full extent of which will be known when we have the details.”

“The increase in service tax will make canvassing insurance a less attractive vocation — again a blow to the fledgling industry,” complains Bishnoi.

The private sector’s expectation of rationalising the taxation of life insurer’s as per the Eradi committee report did not attract Singh’s attention. “Given the other announcements, the absence of anything on taxation of life insurers is a blessing,” says Mony.

On the upside, the increase in standard deduction and the removal of surcharge will put more money in the hands of the consumers and drive savings and investment rates up.

“These incentives, coupled with the removal of the dividend tax, will have a greater positive impact on equities and mutual funds, with a positive but limited trickle-down effect on life insurance,” says Sharma.

On the investment side, Bishnoi hopes the infrastructure commitments and announcements will result in a flow of very long-term investment opportunities.