While, investment in NPS offers additional tax deductions of ₹50,000 under section 80CCD, life insurer’s pension plans do not enjoy this benefit, making it unattractive for customers.
By Kamlesh Rao
The importance of a safety net, in the form of insurance cover has gained immense prominence, especially in the past one year. Both, Insurance companies as well as policy holders are expecting that the upcoming budget will focus on deepening insurance penetration in the country. One such goal will be to secure one’s life after retirement. A large population in our country use pension products offered by life insurers to have regular income post retirement to lead a comfortable life. From a social security standpoint, both pension products offered by life insurers and NPS are serving the same cause of building corpus for retirement income. While, investment in NPS offers additional tax deductions of ₹50,000 under section 80CCD, life insurer’s pension plans do not enjoy this benefit, making it unattractive for customers.
The budget should announce measures to bring parity between pension products offered by life insurers and NPS. Additionally, life insurers offer annuities as retirement income, for which they generally invest the fund in government securities for long-term guaranteed return, which also plays a significant role in nation-building. Government should increase the supply of long dated (40-50 years) bonds for increased liquidity in the market. It should further develop the corporate bond market, where insurance companies can source long-term, credit worthy or enhanced corporate bonds, and generate better long-term yields for such annuity plans.
These measures will not only encourage long-term savings but will also promote capital formation. We are also hopeful to see an expanded bond market. This will generate better yields and thereby help customers to amass greater sum for their retirement and better social security.
