POLICYHOLDERS BEING ADVERSELY AFFECTED BY ADDITIONAL LIABILITY ON ACCOUNT OF PENSION UPGRADATION IS A MYTH

 POLICYHOLDERS BEING ADVERSELY AFFECTED BY ADDITIONAL LIABILITY ON ACCOUNT OF PENSION UPGRADATION IS A MYTH

Right from the time when our Writ Petitions were being heard in the Delhi High Court, LIC has been arguing that the huge additional liability to be incurred by LIC on account of upgradation of pension will deprive policyholders of their benefits -especially policy bonus- under their policies. Unfortunately, we were not able effectively counter this in the DHC as the petitioners were not aware of the IRDAI Regulations on Expenses of Management of life insurers, 2016 notified on 12/5/2016 stipulating that where the statutory limit on expenses are exceeded by the life insurers in any year, the excess of such management expenses over the statutory limit will not be charged to the Policyholders’ Fund but to the Shareholders’ Fund.

In case of LIC pensioners, the huge additional liability that may arise on account of upgradation of pension does not spring up suddenly but is a culmination of accumulation of provisions for upgradation which should have commenced right from 1/8/1997 and when it could not be done, at least from 1/8/2002 consistent with recommendations made as per the Board Resolution in the LIC Board meeting held on 24/11/2001.

Now if Supreme Court accepts our prayers for upgradation of pension, LIC exceeding the statutory limit on management expenses will not arise as the excess over the statutory limit will have to be borne by the Shareholders of LIC. Before the IPO, the Central Government was the sole shareholder -owner of the Corporation. After the IPO, the Government owns 96.5% of the share capital of the Corporation. The effect of the IRDAI Regulations of 2016, is that the policyholders are well protected from the statutory limit on expenses being exceeded by LIC on any account, not merely on account of upgradation of pension.

For instance, as a result of wage revision effective from 1/8/2022, LIC has exceeded the statutory limit on management expenses as disclosed in the latest Annual Report 2024-25. The details on how such expenses are charged on shareholders is shown in the following table:

  

Item 

Total amount to be replenished from Shareholders account (Rs)

Details of amount replenished (Rs)

Balance amount to be replenished with details (Rs)

Excess Expenses of Management for the FY 2022-23(Par segment)

7,230.09 cr

2410.03 cr over four quarters of 2024-25

4,820.05 cr to be replenished over the subsequent quarters upto Q4 of 2026-27

Towards additional pension liability pertaining to Par segment

5,477.10 cr

1,825.68 cr over four quarters of 2024-25

3,651.42 cr to be replenished over the subsequent quarters upto Q4 of 2026-27

So, it is clear that LIC cannot take the plea of policyholders being adversely affected by additional liability arising out of upgradation of pension as they are adequately protected by the abovesaid IRDAI Regulations 2016.

Another important point to be noted is that once the SC Bench accepts our prayer for upgradation of pension, LIC cannot use the financial constraints as a pretext to provide prospective effect  for pension revision for the simple reason that  right to pension has been held as right to property under Article 300A of the Constitution which right cannot be taken away except by law in State of Jharkhand vs Jitendra Prasad Srivastava  2013 in the Supreme Court. If SC allows pension upgradation it has therefore  to   take effect from the  effective date of next wage revision following the date of retirement in chain. 

We need to bring the above points before  the  SC Bench on 8/10/2025 and 9/10/2025 to counter the arguments of LIC/GOI counsel pleading on adverse consequences for policyholders.

C H Mahadevan