Policyholder to buy annuity from same insurer for pension plans: IRDA

Individuals surrendering their pension plans will have to take annuity from the same insurer

June 15, 2012 11:54 IST | India Infoline News Service
According to insurance regulator, individuals surrendering their pension plans will have to take annuity from the same insurer. Till now, there was no clarity on surrendered pension plans.
In November 2011, Insurance Regulatory and Development Authority (IRDA) said that annuities have to be taken by individuals on maturity from the same insurer. Pension guidelines announced by the regulator in November 2011 were silent on the procedure to be followed in cases where the policy is surrendered.
The latest clarification issued by the regulator relate to surrendered pension plan. “At the time of surrender and vesting, the policyholder shall have to buy a single premium deferred annuity or an immediate annuity product from the same insurer who contracted the original pension policy,” J Hari Narayan, chairman, IRDA said through a circular on 14th June.
Before the new pension guidelines were announced last year, customers had the option to choose the annuity product of any insurer. However, the guidelines mandated the policyholder to buy the annuity from the same insurer from whom the pension policy has been purchased.
Pankaaj Maalde, Head-Financial Planning, apnapaisa.com, says, “Previously policyholders were allowed to buy their annuity from any insurer who is offering good deal. Now, they have to stick to the same insurer whether their insurers are offering them most competitive rate of annuity or not.”
The circular also clarifies that if policyholder surrenders his pension policy after the lock-in period of five years, the surrender value will not be less than the fund value.
The circular added that all pension plan surrenders should comply with the ULIP (unit-linked insurance policies) and traditional insurance surrender norms. Generally, in case of traditional insurance plan, there are compulsory deductions in case of surrenders. Similarly in ULIPs, insurers do make certain deductions if policy is surrendered within lock-in period.
Mr Maalde, further adds, “Full withdrawal is not allowed in new pension plans launched after 1 December 2012.  A policyholder can exercise one of the two options if doesn’t want to continue his pension plan. He can either commute 1/3rd of the surrender value (according to Income Tax Act) and utilise the balance amount to purchase immediate annuity from the same insurer, or he can buy purchase single premium deferred pension plan from the surrender value.”

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