Expert Zone

Straight from the Specialists

Pension plans are making a comeback

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(Any opinions expressed here are those of the author and not of Reuters)

Life insurance companies had all but exited the pension sector after tough regulations were put in place to guarantee returns for the investor. This is a vital sector for insurance companies and hit overall business.

In 2010/11, new business of 122 billion rupees was added in the pension sector. This fell to 111.7 billion rupees in the following fiscal year. Worse, deletions in the business increased from 68.9 billion rupees to 195.2 billion rupees last year — surely that would have hurt.

So why did insurance companies drop this huge business opportunity? The sticking point seemed to be the regulation which mandated a guaranteed non-zero rate of return on investments made till the date of vesting.

This guaranteed return was earlier mandated at 4.5 percent by the regulator but was diluted to non-zero returns when it was found to have no takers.

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