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Pension Policy (Deferred Annuity) - Skip It For Now
Investment & Financial Planning is incomplete without focusing on retirement planning. Every individual is suggested by his advisor to have a Pension Plan to take care of his financial independence after he retires. Before we decide whether it makes sense to have currently available Pension Plans, let us look at Pension Plans available a few years back. Year 2001, LIC Jeevan Suraksha (Plan 122) offered guaranteed bonus resulting in compounded growth of 9% for upto 35 years and also the pension was guaranteed @10% on the accumulated corpus. Also available was 100% deduction upto Rs. 10,000/- p.a. u/s. 80CCC over and above the sec. 88 limit. Obviously we can’t expect such high returns today, but you were sure about two things – a fat corpus on retirement and high assured rate of pension. Congratulations, if you have invested in it. How are Pension Plans designed today… In traditional Pension Plans, you select a term & keep investing a fixed amount every year. Your policy corpus grows as per bonus declared every year by the insurance company. In the current scenario, the returns generated are paltry 5-6% p.a. So one thing is sure – not accumulating a healthy corpus even after many years, which may not even beat inflation. But what about the Pension? The rate will be decided in future, at the end of the term. The pension rate will be the rate of the ‘Immediate Annuity Plan’ of that life insurer, prevailing at that time. You also will have the open market option (OMO) to switch to any life insurer so that you get the best available rate of interest on your corpus. But do not forget that the pension is taxable. Now a drawback: If the then existing schemes like current PO-MIS, GOI Bonds, Senior Citizen Saving Schemes are offering higher rate of interest, you cannot invest your kitty there, eg. currently LIC's Jeevan Akshay (Immediate Annuity Plan) is offering 7% whereas PO-MIS & GOI Bonds are offering 8% and Senior Citizen Scheme is offering 9%. Also, there might be some investment opportunity offering Taxfree returns. Would you like to miss that? Then what do we do for retirement provision? Get a good mix of PPF (8% taxfree), Equity Fund SIPs (best for wealth creation over long term), and build a sizeable corpus with the help of our team at BrainPoint. That's not difficult if you stick to the basics like start early, invest regularly & minimize taxes by investing for long term. Once your fat corpus is ready on your retirement day... You are free to invest it in any product that offers you the best rate of interest. You can then check out Bank FDs, Govt. Schemes like PO-MIS, GOI Bonds, Senior Citizen Schemes etc. or any taxfree option. Also check out then prevailing interest rates in ‘Immediate Annuity Plans’ of all life insurers too. So, don’t keep yourself committed now. To sum it up... 1) Invest wisely as mentioned above to create abundant corpus for future 2) Have flexibility to grab the best possible, then prevailing interest rate in future for your pension / regular income. So, say Good Bye to current Pension Policies till the time they offer you either attractive assured growth, or fixed pension or atleast additional tax benefit above Rs. 1 lakh u/s. 80C. So look before you leap at these popular pension plans. |
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For all your investment & insurance needs, please contact us at customerservices@brainpointinv.com |
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