INDIA - The finance minister of India, Jaswant Singh, has announced a new pension scheme for senior citizens that guarantees an annual return of 9%, which will be disbursed by the Life Insurance Corporation (LIC).
Under the scheme, any citizen above 55 years of age can deposit a one-time lump sum amount and start getting a pension from the next month. The minimum and maximum monthly pension proposed are Rs250 ($5.2) and Rs2,000 ($41.7) per month.
To cushion LIC against any losses on account of the scheme, the government has given an assurance that it will reimburse any amount to LIC should there be a difference between the actual yield earned by LIC on the funds invested under the scheme and the assured return of 9%.
Structurally, this is similar to an annuity plan that also provides the option of return of purchase price. The advantage of this plan is in the guaranteed rate of return of 9% in a time of falling interest rates.
However, Indian private insurance players are unhappy over the government’s decision to rope in LIC, and feel they have been denied a level playing field.
OM Kotak Mahindra Life Insurance Company director Shivaji Dam said that it is wrong that this policy is marketed solely by LIC. “The government is clearly indicating differences between the state and private players,” he said.
“If the government is cross-subsidising the pension product, it should give private players equal opportunity,” said SBI Life Insurance Company chief executive officer R Krishnamurthy.
He added that if the private players are roped in, the government can save on subsidy.
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