Pension plans rise in portfolios of insurance companies

Can I lead a comfortable life after my retirement? That's a question an increasing number of people are asking themselves.
And that's the reason why pension plans today contribute about 30% of the insurance industry's total business. The industry is seeing a 20%-25% annual growth in pension policies and a 50% growth in premium. "The average premium for pension plans is higher," says Amit Gupta, director for marketing in ING Vysya Life Insurance.At ING Life, pension plans used to contribute 4%-5% of business in 2006. But in 2008, that's grown to about 10%. For Bharti AXA Life, the retirement product, which was launched in January 2008, contributed 20% of the total premium in the year.
Most private companies do not offer pensions, and employees are typically dependent only on their provident fund for retirement financing, which in most cases is insufficient to maintain current living standards. That's the gap pension plans are seeking to fill. "Pension plans are mainly targeted towards couples in the age group of 35 and 45 years. Couples at this age would have completed saving for their protection needs, would have children who are slightly older and would be now interested in planning for retirement," says Gupta. Young couples are also beginning to plan for retirement, but this is still a relatively small proportion and is largely seen in metros.
Financial planners say it is best to start investing in a pension plan early in life, like 25-35 years, in order to get a meaningful deferred annuity. As the gap reduces between the contribution period and the vesting period the pension amount becomes smaller.
A global survey on retirement trends conducted by AXA in 2008 revealed that the working population in India expects to have a better quality of life or at least maintain the current life standards postretirement. "The survey covered 26 countries and Indians were the most optimistic of all about their retired life. However, the optimism is not supported with financial planning, as 56% of the working population hadn't started preparing for retirement," says the survey. Insurance companies say the major concerns among people in pension planning relates to deciding the right time to invest, planning the right corpus, inflation accounting, and choosing a plan that provides continuous payout beyond a certain age.
Companies are coming with products to cater to different needs. "We have a product that allows people who start planning early to increase their contribution to the retirement kitty progressively," says Shyamal Saxena, chief marketing officer of Bharti AXA. ICICI Prudential Life Insurance has two pension products, a regular premium product and a single-premium product. Tata AIG Life Insurances pension policy offers a guaranteed addition of 10% of the sum assured. The amount will be payable either on death or at the end of the premium-paying period. The plan offers the flexibility to choose the age of retirement and pension. SBI Life Insurance's unit linked pension plan has the flexibility to choose an investment period from 5-52 years for a vesting age between 50 and 70 years.
How pension plan works
A pension plan has two phases: accumulation and annuity. In the accumulation phase, the corpus is accumulated through yearly investment. People invest in pension plans till their retirement age, usually called vesting age. At the time of the vesting age, the corpus is used to purchase an annuity plan at the rates prevailing at that time. Returns that an annuity plan yields will be different depending on the chosen annuity option to pay the pension. Currently, annuity rates for most options vary between 6% and 8%.