NPS creates huge opportunities for life insurers

The revised NPS guidelines are aimed to popularize the scheme among private employees and common people

August 09, 2012 5:28 IST | India Infoline News Service
Despite the New Pension System (NPS) throwing up a large opportunity to life insurers, there are not enough players in the system to take advantage of this, the Pension Fund Regulatory and Development Authority (PFRDA) said.

According to PFRDA Chairman Yogesh Agarwal, the minimum 40% contribution under NPS towards annuity is a great opportunity for life insurers, as they can get captive customers from this system. But we don't have enough players in this area.

Speaking at the 15th CII (Confederation of Indian Industry) Insurance Summit, “Hard Realities and Opportunities in Insurance Sector”,  Mr Agarwal added, “While 85% of the total market in annuity plan are with Life Insurance Corporation of India (LIC), around 10% are with SBI Life Insurance and the remaining are shared among the rest of the players. Despite the huge opportunity, life insurers are not entering this segment." The CII Insurance Summit enthralled a packed audience in Mumbai on 6th August.

The NPS provisions make its mandatory contribution of 40% of the total corpus towards annuity schemes of life insurers, which gives a large customer base to these insurers, the PFRDA said.

According to the NPS provisions, at the end of the tenure (retirement), up to 60% of the corpus can be withdrawn from NPS and the remaining 40% will be invested in an annuity provided by insurance companies. A subscriber has to buy an annuity which will be at least 40% of the total corpus.

If you want to withdraw before 60 years of age, you would be required to invest at least 80% of the pension wealth to purchase a life annuity from any IRDA–regulated life insurance company. The remaining 20% of the pension wealth may be withdrawn as lump sum.

PFRDA recently relaxed the guidelines for registration of pension fund managers (PFMs). The revised NPS guidelines are aimed to popularize the scheme among private employees and common people, Mr Agarwal said.

According to the revised guidelines, PFMs are now allowed to prescribe their own fee charges, subject to an overall ceiling to be laid down by PFRDA. It is expected that this would provide for an economically viable business model for the PFMs attracting a fresh set of entrants into the pension industry, and the resultant competition would ensure market driven fee structures, which would work to the advantage of the pension subscribers. The terms of the PFMs will end in October and then they will have to register afresh under the new guidelines. 

The revised guidelines also lets the regulator allow fund managers to increase their commission from the present dismal 0.0009% per Rs 10 lakh to an amount which is yet to be finalised by the regulator.

 "Though there will be some rise in charges for fund managers, it will still be very minimal in comparison to what insurers and mutual funds charge," he said.

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