Financial Daily from THE HINDU group of publications
Wednesday, Feb 08, 2006
Money & Banking
Industry & Economy - Taxation
FBT hits insurance cos' group business
Mumbai , Feb. 7
THE group superannuation businesses of insurance companies have taken a hit with many corporates discontinuing this benefit to their employees following the introduction of fringe benefit tax (FBT).
A year since the introduction of the FBT on corporate expenditure, some companies have approached the tax authorities seeking permission to liquidate the pension funds and give it to their employees without tax.
Insurance companies say that superannuation schemes are either being discontinued or the decision regarding renewal has been kept on hold until the upcoming Budget.
The effect of FBT is apparent in the shrinking proportion of group superannuation business in the overall group portfolio of insurance companies. Companies are now focusing on group gratuity schemes to keep the business afloat.
Mr R. Venugopal, Executive Director (Pension Group Schemes), LIC, said that with respect to new business through group superannuation schemes, LIC has received Rs 415 crore as on December 31, 2005 against Rs 574 crore during the same period last year - a drop of Rs 159 crore.
However, LIC has offset this by its gratuity schemes premium of Rs 893 crore as on December 31, 2005 against Rs 467 crore in the same period last fiscal. LIC has hence registered an overall growth of 35.7 per cent in the group business.
The corporation, which is the largest player in the group business (82 per cent market share), had a corpus of Rs 10,455 crore under superannuation and Rs 23,000 crore under gratuity as of March 2005.
Among the private insurance companies, Birla Sun Life Insurance (BSLI) has seen a drop of 67 per cent in the group business, primarily due to FBT.
According to the company, the impact of FBT was felt almost immediately after Budget 2005.
In 2003-04, superannuation contributed 41 per cent of the funds in the group business of BSLI with nearly 64 per cent of the fund flows coming in March 2004.
In contrast, superannuation contributed only 28 per cent in the total group business in 2004-05, with only 10 per cent of the funds coming in March 2005.
Mr Nani Javeri, CEO of BSLI, said: "A large number of the companies have discontinued their future contributions to the superannuation funds and at best are only looking at outsourcing the management of their existing funds to life insurance companies. Some employers have even approached the tax authorities to seek permission to liquidate the funds in the superannuation schemes and pay it back to the employees net of taxes."
The other private players that have seen a drop in the group business premium include Max New York Life (79 per cent), Kotak Mahindra Old Mutual Life (18.4 per cent), and SBI Life (14 per cent).
However, ICICI Prudential Life, which has seen 87 per cent growth in premium, admits that FBT had an impact.
Mr Tarun Chugh, Head (Group), ICICI Prudential Life Insurance Company, said that the increase in the business is on account of company (self) managed funds moving to ICICI Prudential for management.
"FBT has had an impact on the growth of the business, as no new superannuation accounts are being opened. Some companies are continuing with the contributions in hope that FBT on this important retirement accumulation tool with be withdrawn in the upcoming Union Budget," said Mr Chugh.
Companies are now hoping that rumours about `simplifying' or `rationalising' FBT will extend to group superannuation.
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