Secure Plus Pension MDU, July 2003

Who is this target consumer? Consumer base, that relates more to traditional kind of products…. Consumers who do not venture into Unit Linked Insurance, because, It may not be affordable right now. They may not have enough financial maturity to buy Linked Plans. Consumers, who would like to take the benefit of Sec80CCC(1) by investing in traditional pension plans.

What can we offer them? Choice of Death Benefit (choosing a ZERO Sum Assured); ease of purchase. Policy accumulation like the traditional pension products. Choice of Annuity options on Vesting. Choice of Annuity Provider (OMO) Choice of deciding the vesting age. Presenting SecurePlus Pension

Secure Plus Pension A)Death Benefit Two Option (i) Zero Death Benefit (ii) With Death Benefit With Death Benefit Sum Assured = Annual Premium* A factor of Term Level of Sum Assured Amount of SA Basic Annual Prem* (Term-5) Standard Annual Prem* Term Enhanced Annual Prem* (Term+5)

Secure Plus Pension A) Death Benefit What is the benefit payable on death? On death, the chosen Sum Assured and Accumulated Value of Policy till that time is paid to the nominee as a lump sum or an annuity. Chosen Sum Assured (A) Accumulated Policy Value (B) Death Benefit (A+B)

Secure Plus Pension B) Policy Value and Accumulations Concept of Bonus Interest A rate declared at the end of every financial year for the policies written in that year and before. It is applied on the amount of premium which is invested after taking all the expenses out of the premium. The Bonus Interest would have a compounding effect.

Secure Plus Pension Start of Year 1End of year 1 End of year 2 Bonus Interest Credit= x%Bonus Interest Credit= y% Invested Premium = a Invested Premium = b Policy Value at the end of Year 1= a (1+x%) Policy Value at the end of Year 2= [a (1+x%)+b]*(1+y%) B) Policy Value and Accumulations How does the Bonus Interest credit work?

Secure Plus Pension Start of Year 1End of year 1 End of year 2 Bonus Interest Credit= 5%Bonus Interest Credit= 6% Invested Premium = Policy Value at the end of Year 1= 10000*(1+5%)= 10,500 Policy Value at the end of Year 2= [ ]*(1+6%)=21730 B) Policy Value and Accumulations How does the Bonus Interest credit work?

Secure Plus Pension B) Policy Value and Accumulations What is the guarantee in this product? All the additions made along with the allocated premiums are guaranteed. That is, once a bonus interest credit is declared, it remains in the kitty, the accumulated amount cannot decrease. So, for example in the previous slide, the amount a(1+x%) remains guaranteed once declared and cannot decrease.

Secure Plus Pension B) Policy Value and Accumulations Invested premiums with bonus interest credited till that time would be paid. However, if the value of the investment account of the policyholder is more, then the additional amount would also be paid.

Secure Plus Pension C) Vesting Options Option to choose a vesting age between 50 & 75. Option to defer the vesting age. At vesting, the accumulated policy value is used to buy an annuity for the policy holder Commutation Allowed – upto 33 1/3%

Secure Plus Pension Annuity Option Life Annuity Life Annuity with return of purchase price Life Annuity guaranteed for 5,10 or 15 years Joint Life, Last Survivor with return of purchase price Joint Life, Last Survivor without return of purchase price Surrender Value Surrender Value would be applicable after 3 years’ premiums has been paid. A surrender value factor would be applied to the policy value to calculate surrender value

Secure Plus Pension Open Market Option Riders ADBR ABR CI MSAR WOP

Secure Plus Pension Boundary Conditions Minimum Premium limits

Secure Plus Pension Charge Structure There is a fixed charge of Rs300 per annum. The investment charge is 1.25% of the fund value.

Comparisons

Tied Annuities- Existing Structure 4 Annuity Options: Life Annuity, Life Annuity with Return of Purchase Price, Life Annuity with Guaranty of 5/10/15 years, Joint Life Annuity with Return of Purchase Price. How do they work? The purchase price at the time of vesting is used to buy an annuity, that would continue for the life of the annuitant or the spouse as the case may be. What is the Annuity Rate applicable? Rate existing as on the date of vesting.

Tied Annuities- New Structure The new annuity structure will also have primarily 5 types:- Life Annuity with return of Purchase Price Life Annuity without Return of Purchase Price Joint Life Annuity with return of Purchase Price Joint Life Annuity without return of Purchase Price Life Annuity guaranteed for 5,10 or 15 years

Life Annuity with return of Purchase Price Stays the same as the earlier structure but with new rates

Life Annuity without return of Purchase Price The purchase price at the time of vesting would be used to buy an annuity, that would be guaranteed for 5 or 7 years as chosen by the policyholder, at the time of vesting. After the period (5 or 7 years), the annuity rates would be repriced for another period (5 or 7 years), and the new annuity rates would be applied to the outstanding capital at that time (which would be the purchase price then), to calculate the annuity payable for the next period. This process would keep continuing every 5 or 7 years.

Joint Life Annuity with return of Purchase Price The purchase price at the time of vesting would be used to buy an annuity, that would be guaranteed for 5 or 7 years as chosen by the policyholder, at the time of vesting. After the period (5 or 7 years), the annuity rates would be repriced for another period (5 or 7 years), and the new annuity rates would be applied to the outstanding capital at that time (which would be the purchase price then), to calculate the annuity payable for the next period. This process would keep continuing every 5 or 7 years. In case of death of the annuitant the same amount of annuity will be provided to the spouse In this option there is a miniscule difference in the initial purchase price and the outstanding capital at the end of the 5 or 7 years

Joint Life Annuity with return of Purchase Price The purchase price at the time of vesting would be used to buy an annuity, that would be guaranteed for 5 or 7 years as chosen by the policyholder, at the time of vesting. After the period (5 or 7 years), the annuity rates would be repriced for another period (5 or 7 years), and the new annuity rates would be applied to the outstanding capital at that time (which would be the purchase price then), to calculate the annuity payable for the next period. This process would keep continuing every 5 or 7 years. In case of death of the annuitant the same amount of annuity will be provided to the spouse

Life annuity guaranteed for 5, 10 or 15 years The purchase price will be used to buy an annuity that is guaranteed for 5, 10 or 15 years. In case the person outlives the term, he would continued to be paid what he was getting earlier, thus translating itself to a life annuity without return of purchase price The above is subject to an annuity rate revision every 5 or 7 years and the annuity after the rate revision would be based on the outstanding capital.

Tied Annuities- New Structure An Illustration Start of the Annuity Purchase Price= 5,00,000 Annuity Rate= Rs10,000/000 of annuity Annuity Payable= Rs50,000 Repricing the annuity Residual Purchase Price= 4,00,000 Annuity Rate= Rs20,000/000 of annuity Annuity Payable= Rs20,000 5/7 yrs.

Tied Annuities- New Structure How do they work?….Continued The residual purchase price at the end of the period would be known at the time of entering the annuity. So for example, the initial purchase price is Rs5,00,000 and the person goes for a 7 year guaranteed period annuity, then the person would know the residual purchase price at the end of 7 years, say Rs 3,00,000 and this would be guaranteed. At end of every period (at the time of resetting), the policyholder would have an OMO, with the residual purchase price. So, in the above example, after 7 years, the policyholder would have Rs3,00,000 guaranteed as residual purchase price, which can be used to buy annuity from other players.

Tied Annuities- New Structure How do they work?….Continued The residual purchase price at the end of the period cannot be paid as lumpsum, and has to be used either to buy an annuity from us or from any other annuity player. In case OMO is used at the time of resetting, 1% of the residual purchase price would be levied as a charge. So, in the example in the previous slide, after 7 years, the policyholder would have Rs3,00,000 guaranteed as residual purchase price, which can be used to buy annuity from other players. In case the policyholder uses OMO, he will have to bear a cost of Rs3,000.

Tied Annuities- New Structure Some Other Features In case the annuitant has lived till 75 years of age, there would not be any more resetting, and the last reset annuity would continue for his life. Frequency of Annuity: Annual, Half-Yearly, Quarterly or Monthly.

Tied Annuities- New Structure How is the new structure beneficial to the customer? It helps the to not get locked in at a very low rate when inflation might make it difficult for him to survive. It helps the customer to reap the benefits of any favourable market movements The logic of accumulating for a pension is not estate creation but providing for the golden years. Therefore a person will look to use up all that he had accumulated for the same rather than living on interest and leaving the purchase price for the heirs. Therefore without return of purchase price seems to be a better option. Moreover, if the capital outstanding at the end of the 5 or the 7 years is lesser than the purchase price, all it means is that part of the purchase price or the initial capital has been used up to pay an annuity rather than paying the customer annuity which is just the interest generated on the purchase price