INDIA BUSINESS WORLD - MARCH 2006
THE MONTH THAT WAS

LIC PENSION PLAN TO PAY 0.5% MORE

Rates are hardening here too. After years of relentlessly cutting down returns on its policies, the Life Insurance Corporation has changed tack. It has hiked returns under its annuity plan. In a reflection of the changing trends in interest rates, the corporation has replaced Jeevan Akshay III with a higher return Jeevan Akshay IV.

LIC officials say the yield has been increased by a minimum of 0.5% and varies depending on the age of the insured. While under the old plan a 60 year-old who invested Rs 1 lakh of his retirement savings in purchasing an annuity would receive an annual payment of Rs 8,560 he will now receive Rs 8,700 every year. The highest yield from Jeevan Akshay III was around 6.1%, which has gone up to 6.7% under Jeevan Akshay IV.

An annuity is a plan where the investor gets a series of regular payments on the payment of a lumpsum investment. Officials say the higher returns are a reflection of the rise in interest rates in the market.

The yield on government securities — where LIC invests bulk of its funds — has risen over the last one-and-ahalf years. The return on a 10-year bond is currently 7.38%; a year ago the same 10-year paper fetched 6.7%. There has been a corresponding increase in interest rates on other fixed income instruments.