Financial Daily from THE HINDU group of publications
Friday, May 30, 2003
Money & Banking - Life Insurance
Pension scheme not for pvt insurance cos
Sarbajeet K. Sen
NEW DELHI, May 29
CONCERN over the subsidy bill has forced the Government to decide to keep in abeyance the demands of private life insurance companies to participate in the assured returns pension scheme for senior citizens the Varishtha Pension Bima Yojana. The scheme, which was announced in the Budget, would remain the exclusive preserve of the Life Insurance Corporation of India (LIC).
A decision on whether to allow private players to offer the scheme would be taken after assessing the response that LIC gets once the scheme is put on offer. "We would like to wait and see what response LIC gets to the scheme over a period of time before our next move," they said.
A review of the functioning of the scheme could be done within the current fiscal. "We would have to give it a go for a few months," officials said. Details of the scheme are being worked out by LIC and are likely to be announced shortly.
The private life insurers, led by SBI Life Insurance Co, had protested against the Government's decision to give monopoly to LIC. They had made representations to the Ministry of Finance to be allowed to participate in the scheme.
However, officials said that the subsidy element in the scheme had forced the Government not to allow more players to offer the scheme simultaneously. "There is a substantial subsidy element in the scheme. If the response to the LIC offer is overwhelming we would not like to add further insurance players into it," officials said.
The Varishtha Pension scheme, which is open to persons above 55 years of age, would guarantee an annual return of 9 per cent that would be paid in the form of monthly pension. The floor and ceiling for such monthly payment has been set at Rs 250 and Rs 2,000.
Under the scheme, any person above the cut-off age could make a lump-sum payment and would immediately start getting monthly benefits calculated on the basis of the 9 per cent annual return.
The Government has promised to reimburse LIC the difference between the actual yield earned by it from the funds collected under the scheme and the promised assured return of 9 per cent.
The announcement of the scheme had ruffled the feathers of the private players, who felt that it would give an undue advantage to LIC in a particular segment of the pension market. Taking the lead, SBI Life Insurance had written to the Government pointing out that they were as qualified, if not in a better position, to offer the scheme to a wide section of the population.
It had pointed out that if the branch network of the parent bank, the State Bank of India (SBI), is used it would have a better reach than LIC in helping the product to reach the remote areas of the country.
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