Irdai relaxes rules to help you claim pension money
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A pension policy sold by the life insurance industry is known as a deferred pension plan. 2 min
read . Updated: 09 Aug 2018, 12:37 PM IST Deepti Bhaskaran
Any accumulated amount that's not sufficient to buy minimum annuity can be paid back as lump
sum to the policyholder
The life insurance industry collectively has ₹ 15,166.47 crore of unclaimed money that belongs
to policyholders. Last year, the Insurance Regulatory and Development Authority of India (Irdai)
asked insurance companies to make provisions to reach out to the policyholders and pay them
their dues, now the regulator itself is taking steps to make it easier for policyholders to claim
their money.
Through a circular dated 3 August, the insurance regulator has relaxed the rules on pension
products and allowed policyholders to completely withdraw smaller amounts accumulated
through pension products. This is one of the reasons why insurance companies have unclaimed
money, said the circular.
Current rules
A pension policy sold by the life insurance industry is known as a deferred pension plan. This is
because in the initial phase or through the policy term, you invest periodically to accumulate a
corpus. On maturity or at the end of the policy term, you can only keep up to one-third or about
33% of the maturity corpus tax-free in your hands. With the remaining money, you need to buy
an annuity or a single premium deferred pension plan. An annuity product provides you pension
for life .
Also Read: Opinion | Why financial independence matters after retirement
As per Irdai rules, an insurance company needs to pay an annuity amount of at least ₹ 1,000 per
month to the policyholder. In other words, your corpus has to be enough for the insurer to give
you ₹ 1,000 per month, after annuitising. For this, the corpus for a 60-year-old would have to be
about ₹ 2 lakh, in the current scenario; most insurers specify a minimum purchase price for their
annuity products. If the accumulated amount is lower, insurers can’t annuitise, and since the
rules allow you to withdraw only one-third of the maturity corpus, insurers are left with the
remaining money.
We spoke to insurers to understand what happens to this money: while some insurers hold on to
the amount and move it to the unclaimed fund, some others refund it to the policyholders. So
there is ambiguity on what to do with this money.
Also Read: How to get regular income after retirement
Going forward
But now Irdai has specified that any accumulated unclaimed amount that’s not sufficient to buy
the minimum annuity amount can be paid back to the policyholder as lump sum.
According to income tax rules, any amount that’s commuted (taken as lump sum) from a pension
product is tax free. So the amount refunded to you will be tax free too.
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