MUMBAI: The Insurance Regulatory and Development Authority of India (IRDAI) has asked the Life Insurance Corporation (LIC) to review the return on its flagship Jeevan Akshay pension plan which provides regular income against upfront premium. The regulator wants the insurance company to ensure that returns are in line with yield on LIC's investments.
The directive comes at a time when the corporation is seeing record inflows into the pension plan, which offers a guaranteed return of 6.75-7% even as returns from government bonds have crashed. The yield on a 10-year government bond has fallen to a low of 6.5% as banks, flush with funds following demonetisation, are chasing investment avenues in the absence of credit growth. IRDAI's move to ask LIC to review return is seen as a nudge to lower rates as these are long-term obligations.
While other corporate bonds do offer a higher yield, the corporation has to factor in commission, administrative and distribution costs while selling the policy. Also, corporate bonds have a shorter tenure of up to five years while the policy guarantees returns for life.
According to one actuary, LIC stands to gain by providing guaranteed returns.In policies where they are not guaranteed, the returns are paid out of the investment surplus. The investment surplus is distributed between policyholders and government in the ratio 95:5. In guaranteed-return policies, the investment income is assigned to the policy before distribution to the government.
Anand Jathan, one of the top agents at LIC, said, "While there are investments like the Pradhan Mantri Vaya Vandana Yojana (PMVVY), which provide a return of 8%, these are only for a period of 10 years.Jeevan Akshay pension is guaranteed for life with a widow pension option." He added that the return of capital made this equivalent to a fixed deposit.
According to Jathan, investors selling real estate also choose to park their funds in LIC's guaranteedreturn scheme. LIC is encouraging sales of the Jeevan Akshay plan as it significantly increases its top line and bumps up its market share. Agents who bring in large policies are being rewarded and recognised.
