Confused over pension plans – we got it covered!
I slept and dream’t that life is beauty
I woke and found that life is duty.
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. During retirement, income stops but the expenses don’t. With inflation increasing the cost of basic essentials, your savings today might not suffice meeting the cost of necessities throughout the retired life. It is therefore important to start saving early and in a planned manner for a comfortable, stress-free retired life. What is also important is to determine your goal for the retirement corpus basis your projected needs during retired life.
Let me start by taking about pension plans and their types. There are mainly two type of pension plans at broad level.
Deffered Annuity Plans : Most of the pension products in India are sold by LIC and all the private companies are deferred pension plans. These plans have accumulation phase inbuilt in itself and hence you first pay premiums for ‘X’ number of years. Once you retire, then you start getting pension income. You can see these types of plans all over the market. Some examples are LIC Jeevan Tarang, LIC Jeevan Nidhi , Bajaj Allianz Swarna Raksha ROC. New Pension Scheme (NPS)
Immediate Annuity Plans : These products are called immediate annuity plans
because they start paying you the annuity right from day one once you make a lumpsum payment. So if a person wants a monthly pension and has huge lumpsum money, he can buy an immediate annuity plan and start getting pension. It’s a simple product which is not so much popular in India like deferred annuity plans. Some of the examples of immediate annuity plans are LIC Jeevan Akshay. ICICI Pru Immediate Annuity. HDFC Immediate Annuity .
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?
LIC and HDFC Life have 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. While LIC’s is a traditional plan, HDFC Life’s is a unit linked pension plan. A couple of other large life insurance companies too are expected to launch their offerings shortly.
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 maximize 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.
Birla Sun Life insurance plan