Insurance Regulatory and Development Authority of India (IRDAI) at its annual review meet in Hyderabad raised concerns over the low sales of its pension products. With little scope for innovation and tough regime, the products are likely to see some re-structuring.

As per an industry source "At one point, pension products used to constitute about 25 percent of the business of life insurers. This has now dropped to a single digit and is a matter of concern. We will see if any enabling structures can be brought".

Other pitfalls of these pension product offerings of insurance companies which have lowered down their sales are absence of partial withdrawal from these on certain circumstances. The regulator is asking that annuity be brought from the same insurance company.

The pension products on offer by insurers are just basic guarantee products. However in previous years, the mandates enforced required companies to offer non-zero return on these products.

The pension products of life insurers face tough competition with government's NPS scheme which is better in terms of tax incentives and other attributes. Also, investment in equity by NPS provides good return to the stakeholders. There is no service tax in lieu of NPS investment while investment in pension products of insurers calls for payment of service tax.

The roll out of GST is further going to add to the cost of these products as insurance and other financial services are kept in the 18% tax bracket, making the products for insured expensive by another 3%.

So, to rule out the inefficiencies of pension products, companies have been demanding better tax incentives in respect of pension products.

"On one hand, pension products are unable to compete with NPS, on the other taxes are high. We have sought a better structure that gives us more flexibility in terms of investments out of pension funds" said one of the CEO of the insurance company.

GoodReturns.in