| Where do we go'
New Delhi, March 4: After poring over the fine print of the budget, the private insurers are incensed that they have been left out in the cold. The biggest grouse is over the decision to permit only the state-owned Life Insurance Corporation (LIC) to offer a pension policy.
The other gripe is over the withdrawal of the tax breaks provided under Section 10 (10d) of the Income Tax Act under which setoffs were permitted in single premium policies—a portfolio that accounts for 40 per cent of all premia collections by private insurers.
Finance minister Jaswant Singh had said in his budget speech that LIC would formulate a special pension policy for citizens above 55 years of age that would guarantee an annual return of 9 per cent a year.
“We have been discussing various aspects of the budget; it doesn’t look too good for us. We intend to meet the finance minister and ask him to redress some of these grievances,” said a senior official from HDFC Standard Life Insurance Company.
“We are primarily concerned about withdrawal of the tax exemption under Section 10 (10d) and the decision to prevent private insurers from formulating pension policies,” he added.
Stuart Purdy, managing director of Aviva Life Insurance, told The Telegraph: “The implementation of the amendment to Section 10 (10 D) in the Finance Bill 2003 will reduce the tax effectiveness of single premium policies. These are savings-oriented policies where the sum assured is less than five times the premium. If the tax benefits on the single premium investment policies are withdrawn, they will become less attractive as compared with other savings instruments (mutual funds etc) as there would be a significant drop in the net yield.”
A senior official from ICICI Prudential Life Insurance said: “We have played a significant role in developing the pensions market. So, we are obviously keen to participate in this mass pension segment that has been opened to LIC. We will be talking to the regulator and the government expressing our interest.”
The industry does not sound enthusiastic about a different pensions regulator. The setting up of the independent Pension Fund Regulatory and Development Authority has put an end to the suspense on who would regulate the pension sector.
Although industry hoped that Insurance Regulatory Development Authority would regulate pensions, the Securities and Exchange Board of India was another contender. Industry insiders believe that the new regulator would need a long time to study the complexities of pension reforms and could set the clock back on pension reforms.
Yvo R. Metzelaar, managing director and CEO of ING Vysya Life Insurance, said: “We expected the government to increase the cap on foreign direct investment in insurance to 49 per cent just as it was done for different sectors. We are disappointed on this front.” The cap on FDI in insurance is 26 per cent.