There could be good news for insurers on the pension products front.

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The Insurance Regulatory and Development Authority (IRDA) is likely to end guaranteed returns at the time of policy surrender, according to a person familiar with the development.

“They may also impose surrender charges on discontinued pension policies,” the source said.

J Hari Narayan, chairman of IRDA, told DNA that the regulator is revisiting the final guidelines on pensions which came out in November. “We are likely to come out with the revised guidelines within two weeks,” he said.

Insurers had objected to guaranteed returns at surrender because they believed it would be a huge impediment to their business. Their stand has been that if a policy holder chooses to discontinue within months of purchase, there’s no way the holder should get guaranteed returns.

P Nandagopal, managing director and CEO,  IndiaFirst Life Insurance, explained: “Assured guarantee on a surrendered policy will be difficult for insurers because liquidation will be an issue. Companies will have a tough time due to asset-liability mismatches.”

Also, insurers contended that if a guarantee clause is inserted, then investments by insurers will be totally tilted towards debt. That, in turn, would keep away savvy, risk-on investors.

On the other hand, IRDA accepts that mis-selling was rampant in pension policies due to which, it has been in the process of making sweeping changes.

IRDA had rolled out guidelines on pension products last November. They specified that, at the time of sale, all pension products should come with an assured benefit in case of death, vesting or surrender. This meant that insurers needed to provide a non-zero-return, or capital guarantee, in case of death, vesting or surrender on their pension offerings.

Early in 2010, IRDA had proposed the implementation of 4.5%minimum guarantee that was linked to reverse repo rate.The industry wasn’t happy about this and didn’t file new products throughout that year and finally IRDA scrapped the rider. While that was a relief, there was haze on many other parts of the guidelines too.

Insurers then filed revised pension products this January.

But IRDA rejected them and asked the companies to refile by offering guaranteed surrender charges.