The life insurance industry is bearing the stress of a 90 per cent tumble in pension business. It is due to a special tax treatment for the New Pension System and a regulatory clause that makes it mandatory for life insurers to offer guaranteed returns to subscribers. The pension business of life insurance players is down to a combine Rs 2,000 crore in 2014-15. The jump has been more pronounced since the introduction of the clause in 2009-10.
It is compulsory for life insurers to offer guaranteed returns on pension products. The Budget provision of Rs 50,000 worth of additional tax-free incentive to NPS investment has made their life harder. The regulator has asked insurers to offer guaranteed pension which they find it difficult, given uneasy market conditions. Second, by introducing specific exemption of Rs 50,000, NPS has seized the pension business from life insurers. Life insurers’ pension business is not growing because the government didn’t allow life insurers with pension products. It will be treated at par with NPS in which one can invest Rs 50,000 in addition to the already existing limit of Rs 1.5 lakh which will be tax-free.
The largest life insurer, Life Insurance Corporation (LIC), has said the extra benefit for NPS may put pressure on its pension product sale. So far, they have not been hit, but going forward it may put pressure on their pension sales. Specific exemption for pension funds by insurers will give the much-needed impulsion and help increase penetration. After remaining a non-starter for the last five years, the retail segment of NPS seems to be making headway on the back of this tax-free additional incentive in the Budget.
There are seven fund managers that are managing the pension funds at present, whose retail AUM stands at Rs 700 crore. SBI Pension’s AUM has grown by Rs 5,700 crore in the past four months. They are looking at achieving a growth of 25-30 per cent during the current fiscal. HDFC Pension’s retail AUM has gone up 2.5 times since the Budget announcement. The monthly fund inflow into retail has gone up 2.5 times to Rs 12.5 crore now. They are looking at mobilising Rs 500 crore by the fiscal end from the current retail AUM of Rs 100 crore.
