Investors have reasons to worry for their pension plans as country’s largest life insurance company, life Insurance Corporation of India (lIC) is all set to soon reduce rates on Jeevan Akshay pension plan by 50 basis points (bps) or
0.5 per cent from the existing rate of 6.75-7 per cent from December 1 this year following the trend on falling interest rates in the country, according to the sources.
Jeevan Akshay, the immediate annuity plan from lIC that provides guaranteed return of 6.75-7 per cent at present, is a long-term investment by the investors. The scheme is considered as a cash cow plan for insurer and it is especially open for the long-term investors who fall between 30 and 85 years of age.
Confirming the move, a top lIC official told The Pioneer, “As per the regulatory suggestion, we plan to cut rates of Jeevan Akshay plan by 50 bps or 0.5 per cent from the existing rate of 6.75-7 per cent due to falling trend of interest rate. The new rate will be effective from December 1, 2017 and the details of the scheme will be available in the public domain very shortly.”
A year ago, exactly at this time only, the life insurance giant also reduced the same 50 bps or 0.5 per cent to 6.75-7 per cent from 7.25-7.5 per cent in 2016. The insurance regulator, however, wants the rate offered by the pension plan to be brought down in accordance with the return on company’s investment.
The insurer’s move came just one month after insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) had reportedly asked the lIC in September to review the returns as the yield on 10-year Government bond had fallen to 6.5 per cent. But a senior IRDAI official denied the fact, saying that no such advisory has been issued to lIC from the regulator.
With this existing plan, lIC has already managed to garner fat revenues from individual investors as they park the huge amount at one go for long-term returns.
The pension plan has seen a record inflow as it provides regular income for life time of the annuitant on payment of one-time lump sum. As a result, the cash-cow scheme has helped lIC increase its revenue and market share to a great extent.
When asked about the impact of lIC’s revenues, he added, “It has been a highly-yielding plan for the company. With this move, the company’s revenues may be slightly hit to some extent but not much as this is one of our popular products for lIC.”
Generally, long-term investors chose lIC pension policy over higher return instruments like corporate bonds and other Government schemes like Pradhan Mantri Vaya Vandana Yojana (PMVVY) with 5 to 10 year tenure, as it offered guaranteed pension for life with an option of 100 per cent annuity payable to spouse during lifetime or death of the policyholder. Also, young people having surplus funds find Jeevan Akshay as an attractive investment avenue as the minimum age to purchase pension plan is 30 years.
Each pension plan has different riders and options in the market, which are suitable for different sections of people. Hence, more options in the pension schemes or any other schemes give more choice to the interested investors.
“lIC may see a big hit in its revenues as Jeevan Akshay is a cash-cow plan for the insurer as well as for investors. With 50 bps cut in the scheme, the investors may opt for other mode of investment such as mutual fund or banking products which will ultimately give them better returns,” a top insurance agent said, requesting anonymity. #END#