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Pension Plans

उम्र ढलते देर नहीं लगती
उस वक़्त के लिए बचत जरूरी है जब कमाई नहीं होगी।

अपनी वर्धवस्था में पेंशन का विकल्प तैयार करो, आज से बचत शुरू करो

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Why is retirement planning crucial? read more here...

Stop putting yourself last

Why would you wake up in the morning, leave your family, not do what you want with your day, go to work all day long for 8, 9, 10 hours a day, commute back home, get up and do it all over again?

Why would you do this 5 days a week, 4 weeks out of the month, 12 months out of the year?

Why would you do all that to earn money and not pay yourself first?

Most people pay everyone else before themselves: the government, their creditors, and their bill collectors.

Everybody else gets paid first and then if anything’s left over, then they pay themselves.

That system stinks and is designed for you to fail financially. If that’s the system you’re using right now, and you don’t have money, that’s why. The odds are set up against you. It’s too tough for you to get rich if you’re paying everybody else first. You need to change this. You need to completely redirect your income so the first person who gets paid is you.”

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Which is the better pension plan?

Work hard, save a lot and retire early seems to be the dream of many belonging to the Indian salaried class today. But truth is, even if you manage the first two actions, the third may prove difficult because there are very few pension products available in the market today for those who need a regular income.

After a long hiatus, life insurance companies have recently begun to re-launch their pension plans, with assured returns as mandated by the insurance regulator. But should the new offerings be your investment vehicle for retirement income? We analyse them.

LIC has recently launched plans that are designed as deferred annuity products.

You pay premiums for a number of years to accumulate a corpus. After retirement, the corpus is used to purchase an annuity with the same insurer, which allows you to draw a pension after retirement. Note that LIC’s is a traditional plan with NO-RISK.

But though they assure capital protection and a minimum level of returns, these products should be considered along with other avenues, if investors are keen to beat inflation. Investors who would like to maximise their returns can consider using a combination of debt-oriented balanced mutual funds, debt funds and the Public Provident Fund, along with the plans of insurers for the purposes of earning a pension. Contact today at any of the LIC branches or chief life insurance advisor in your area.

 

Unit Linked Pension Plans not attractive (as have high risk component)

HDFC Life’s Pension Super Plus is a unit linked plan, which too offers assured returns.

In the investment phase you pay premiums regularly till your intended retirement and then purchase an immediate annuity from the same insurer.

The policy assures 101 per cent of all premiums paid as guaranteed return on maturity, which gives a paltry one per cent definitive return.

In case you were to die before the policy term, your nominee will receive the higher of the fund value or 6 per cent per annum addition to premiums paid till that date.

This policy has the mandate to invest 0-60 per cent of its portfolio in equity, making it more risky than traditional plans.

But with assurance of returns, the provider may in practice, invest less than 60 per cent in equity. Hence, over the long term, the returns may still lag inflation rates.

You can withdraw a third of the accumulated corpus (which is tax free) after the accumulation phase and take an immediate annuity or a pension plan with the balance.

Also, as with all unit linked pension products, the charges are high. In the first 10 years, the fund charges 2.5 per cent for premium allocation. Then there are other charges on top of this: fund management (1.35 per cent a year), policy administration (0.4 per cent), mortality and investment guarantee (0.4 per cent).

Again, the insurance component is quite low. It being the first ULPP launched with assured returns, there is no past record to go by from this genre of funds.

Alternative

LIC’s New Jeevan Nidhi is a traditional plan. You pay premiums for a fixed 20-25 years. In the first five years, there is a guaranteed addition of Rs 50 for every Rs 1,000 sum assured. From the sixth year, you would be eligible for bonuses declared by the company.

After the accumulation phase, you would have to buy an immediate annuity product from LIC itself, which would give you a pension at periodic intervals opted for by you. Now, in the accumulation phase, you would get just 5 per cent returns on your premiums for the first five years. After the sixth year, you will be eligible for bonuses.

It being a traditional product, the bonuses declared may typically be 6-7 per cent (on sum assured). These bonus rates are among the highest in the industry. But these are simple additions and don’t earn compound interest.

The overall return at the end of the 20-year period is likely to be around 6 per cent. This return rate may fall short of inflation in the consumer price index, which has been hovering in the 9-10 per cent range over the past four years.

Higher returns on this product are restricted by two factors. The compulsory requirement of assured returns forces these plans to invest in safe instruments with lower yields. You are thus faced with a situation where you have low insurance cover and insufficient capital appreciation to beat inflation.


 

Other Plans From L.I.C. Of India