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Retirement Plans Introduction: Increasing life expectancy rate, rising health care costs, absence of social security system

in India and disintegration of joint family system are some of the key reasons that makes retirement planning very critical. To help you continue celebrating your life post-retirement to the fullest, SBI Life presents you an array of pension plans which are simple and innovative.

Cover at Sunset Tips for choosing the best retirement insurance plan Delhi Edition: October 2011 STORY TOOLS Change font size Print this story E-Mail this story Comment Retirement plans offered by life insurance companies are bundled products, offering the benefits of both insurance and investment. A typical retirement plan has two phases. The first is the accumulation phase, during which you pay premiums and the money accumulates through the tenure of the plan. The accumulated money is then invested in securities approved by the Insurance Regulatory and Development Authority (IRDA ), the insurance regulator.

These products are designed to protect the value of your principal while at the same time provide you with steady returns. The accumulation stage is followed by the vesting age, which is the age when you start getting payouts from the kitty. This can be selected by you. The vesting age in most plans is 40 to 70 years. The period when a person gets pension is also called the annuity phase. During this phase, you can withdraw up to 33% of the accumulated amount in one go. The rest is paid as pension. In the immediate annuity option, a person can pay in lump-sum, instead of over the years, and start getting income immediately. The frequency of payments received can be monthly, quarterly, half-yearly or annually. *TERMS YOU NEED TO KNOW* VESTING AGE: The age at which you choose to start receiving pension. ANNUITY: Regular monthly pension payable to you after your cross the vesting age. SUM ASSURED: The amount that the nominee receives in the event of death of the insured during the accumulation period. ACCUMULATION PERIOD: This is the period when you pay premiums to accumulate funds for retirement. SURRENDER CHARES: Charges levied by the insurer if you end the policy before the date of vesting. PARTICIPATING PLANS: These plans give a share of the insurer's profit to policy holders. This share is not fixed and depends on the financial performance of the company.

Ulips Geared for Old-age Cover At present, there are only four unit-linked insurance plans (Ulips) for retirement in the market. All these are single premium plans, that is, you have to pay premium just once, at the beginning of the plan. Most Ulip retirement plans invest only a small amount in equitybased funds to avoid risk and secure capital. SBI's Smart Pension and IDBI's Retiresurance Milestone Pension Plan have a maximum of 10% equity exposure. HDFC SL Pension Maximus is the most aggressive with up to 30% equity exposure through its Pension Guarantee Fund 1. If you are young and can invest for a long time, you can opt for higher equity contribution to ensure better potential earnings. Since all available retirement Ulips are single-premium ones, equity can give you huge returns due to the compounding effect. Product Differentiation If you want the benefits early in life, HDFC SL Pension Maximus works the best, as its vesting age starts from 40 years. IDBI's Retiresurance Milestone Pension Plan suits those who plan to retire late as the upper vesting age is 85 years. The maturity benefits vary a lot. All plans, other than ICICI Pru Life Link Pension SP, pay guaranteed fund value or guaranteed vesting value, whichever is higher. In ICICIPru Life Link Pension SP, the minimum guaranteed NAV, or net asset value, is Rs 19.10 at vesting. This means even if the NAV of the plan falls below Rs 19.10, your fund value will be calculated on basis of Rs 19.10. There is little differentiation between products on other parameters. However, ICICI Pru Life Link Pension SP is the only plan that offers loyalty additions of up to 2.5% of the fund

value at the end of the 10th policy year provided that the premium paid is Rs 50,000 and above. (For product details and their charateristics refer to Features of Ulip Pension Plans) How to View Charges Levied? ICICI Pru Life Link Pension SP scores average as its premium allocation charges are slightly on the higher side. However, other charges are similar as in other plans. So, if you do not mind marginally higher charges, ICICI Pru Life Link Pension SP is a good option. Features of Traditional Retirement Insurance Schemes Click here to Enlarge Traditional Retirement Plans Out of 19 traditional retirement plans, 15 are participating ones. Participating plans give a share of profit to policyholders. This share is not fixed and depends on the performance of the company. When a company makes higher profits, the payout rates to its policyhoders are normally reivsed upwards. Working out Maturity Benefits Maturity benefits in traditional plans are based on the sum assured. At maturity, a buyer of a participating plan gets sum assured along with guaranteed additions, if any, and bonuses. The examples of such plans are Bajaj Allianz SwarnaVishranti, ICICI PruForever Life and HDFC Life ClassicPension Insurance Plan. The retirement plans from Kotak life insurance-Kotak Capital Multiplier Plan and Kotak Retirement Income plan-provide sum assured or accumulated amount, whichever is higher. The returns include guaranteed loyalty additions and bonuses. In case you have a conservative approach and don't want to risk your money, it is advisable to go for plans that return the

sum assured. However, it will be a good idea to choose a plan that offers the higher of sum assured or accumulated amount, if such an option is available. Retirement plans are designed to provide returns only at the age you require them the most, that is, the vesting age. Usually, no withdrawals are allowed during the accumulation phase. However, BSLI Secure 58 Plan from Birla Sun Life allows withdrawal from the third policy year. One should be careful not to use the facility recklessly, so that the purpose of saving for old age is not defeated. SAVE FOR RETIREMENT WITH EASE Why saving for retirement is 1. important Investing in realty has both pros 2. and cons 3. How to select a retirement plan Mutual Funds best for building 4. retirement kitty How to choose best insurance 5. cover for retirement Reverse mortgage house for 6. regular income Tips to buy property for retirement 7. years 'Incentives needed for pension 8. schemes' Varied Death Make hobby your career in postBenefits on Offer 9. retirement The good part about traditional retirement plans is that they provide life cover during the accumulation phase. Different plans offer this benefit in different forms. For instance: >> Bajaj Allianz Swarna Vishranti and ICICI Pru Forever Life give the spouse the option of taking the sum assured in lump sum or buying annuity. ING New Best Years gives the option of deferring annuity if the spouse's age is less than 45 years, encashment of up to 5 per cent of the benefit amount up to 45 years of age and immediate annuity at 45 years.

>> In HDFC Life ClassicPension Insurance Plan and Met Pension-Par, there is an option for return of premium, with or without interest. >> The third category relates to plans such as Tata AIG Life Nirvana Plus and SBI Lifelong Pension Plus, which provide the facility of withdrawing the accumulated amount. However, in Kotak Capital Multiplier Plan, one can withdraw the accumulated amount for 15 years or up to 75 years of age. Other Retirement Planning Options 1. Other endowment plans can also be used for retirement planning, but their returns are low. However, special endowment assurance plans such as Max New York Life Partner Plus provide 7.5% sum assured from 61 years up to 75 years of age. At 75 years, you will be paid the sum assured, which can be then used to buy annuity. Features of Ulip Pension Plans Click here to Enlarge 2. Ulips, such as long-term investment plans, can be used. Although they have a scope for building an unlimited corpus, their downside is not protected and you may end up losing your capital. Capital protection plans such as the highest Net Asset Value (NAV) guaranteed plans can be used, but their charges are higher as compared to retirement plans. These plans assure you payment at the highest NAV reached by the fund during its tenure. However, conditions may vary from company to company. 3. NPS (National Pension System), PPF (Public Provident Fund) and EPF (Employee Provident Fund) are some other options. However, under the proposed direct taxes code, their maturity proceeds will be taxable. This is not the case in insurance retirement plans. There is no insurance or protection

cover either. 4. Direct equity or mutual fund investments can also be used to create long-term capital, but prudence will have to be used, as such products do not have any fixed time horizon and maturity value. You will have to time the market correctly to maximise benefits. Fund houses are coming up with options for retirement with fixed lock-in periods, but they still have to figure out issues related to downside and capital protection. Retirement planning through insurance plans is a good option to maximise your returns. However like in most investment planning exercise, you will be better placed if you start your investment planning early in your financial life and keep investing regularly. SATKAM DIVYA Business head, RupeeTalk.Com Plans that return sum assured at death during accumulation phase Bajaj Allianz: SwarnaVishranti ICICI Pru: ICICI Pru Forever Life Tata AIG: Tata AIG Life Nirvana Tata AIG: Tata AIG Life Nirvana Plus Aviva Life: Aviva Secure Pension Sahara Life: Sahara Amar Jeevan WAYS TO EARN MAXIMUM BENEFIT Start investing early so that you can channelise a larger part of your savings for a comfortable retired life. For retiring, choose an age that coincides with the retirement age in your profession or falls later, so that you get a larger pension. If you want a larger quantum of money in the earlier part of your retired life on a regular basis, go for plans such as Kotak Capital Multiplier Plan which allow immediate withdrawal or partial withdrawals till 75 years of age or for 15 years, whichever is

earlier. If you are looking at liquidity before retirement, pick plans such as BSLI Secure 58 Plan from Birla Sun Life that allow withdrawals even during the accumulation phase. This plan also provides pension till 90 years of age. No other plan has such a high vesting age. If you have not bought a separate term plan for death benefits, Kotak Capital Multiplier Plan will be the best choice as it provides the accumulated amount or sum assured, whichever is higher.

Why NPS is the best way to plan for your retirement


Jan 21, 2013, 11.15AM IST

Tags: pension| NPS| National Pension Scheme| government securities| ET Wealth| corporate bonds| Asset allocation| annuity

(The NPS charges fund management)

By Yogesh Agarwal The Indian population is greying. According to the latest UNFPA report, the number of Indians above 60 years is projected to rise to 55% by 2050. The demographics also indicate an increasing longevity with a more active lifestyle after retirement owing to betterment in medical facilities. While this is good news, it also means that tomorrow's retirees will have a longer retirement and must, therefore, accumulate a bigger corpus for their sunset years. Retirement planning involves disciplined saving, vigilant investment to build a sufficient retirement corpus and its judicious drawdown in the post-retirement phase.
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The National Pension System (NPS), launched by the Pension Fund Regulatory & Development Authority (PFRDA), takes all these concerns into account. The NPS is a sophisticated innovation that is based on the world's best practices in the pension sector. While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40 years, the charges can shave off a significant amount from the corpus. The NPS charges fund management fees of 0.0102% for the government employees and there's a ceiling of 0.25% for the private sector. This is perhaps the lowest in the world. Account opening, handling and administrative charges are also the lowest, making the cost-adjusted returns of the NPS quite attractive in the long run. It is estimated that the total cost of the NPS, including the fund management fee, will not exceed 0.5% per year, making it the cheapest financial product in India. The NPS is a well-regulated, transparent and flexible scheme. It has laid down prudent investing norms for fund managers, and their performance and portfolios are regularly monitored by the NPS Trust under the overall supervision of the PFRDA. The scheme offers complete flexibility. The investor decides the percentage of the corpus that goes into equity, corporate bonds and government securities, with the only limitation being the 50% cap on exposure to equity. One of the most outstanding features of the NPS is the 'lifecycle fund'. It is meant for those who are not financially aware or can't manage their asset allocation themselves. It is also the default option for someone who has not indicated the desired allocation for his investments. Under this option, the investor's age decides the equity exposure. The 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%. This is in keeping with the strategy to opt for a higher-risk, higher-return portfolio mix earlier in life, when there is ample time to make up for any possible black swan event. Gradually, as the investor approaches retirement, he moves to a more stable fixed-return, lowrisk portfolio. This automatic rejigging of the asset allocation is a unique feature of the NPS. No other pension plan or asset allocation mutual fund offers such a facility to investors. There are a few funds based on age, but they are one-size-fits-all solutions, not customised to the individual's age. Another unique feature of the NPS is the tax benefit it offers under the newly added Section 80 CCD(2).

Under this section, if an employer contributes 10% of the salary (basic salary plus dearness allowance) to the NPS account of the employee, this amount gets tax exemption of up to Rs 1 lakh. This is over and above the Rs 1 lakh tax deduction under Section 80C. It's a win-win situation for both because the employer also gets tax benefit under Section 36 I (IV) A for his contribution. By putting in money in the NPS, the employer can provide an additional tax benefit to the employee by simply reorganising the salary structure without incurring any additional cost to the company (CTC). The NPS allows one to accumulate the corpus from

the age of 18 for 40-odd years. There is minimal leakage in the form of withdrawals for competing consumption expenses.
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Benefit. Buy NowLIC.TermInsuranceIndia.co.in Automated TradingLet the Pros Trade for You! 24 Hour investments - Trade All Daywww.4xp.com/Autotrading This allows the investor to reap the benefits of compounding till he turns 60. The NPS also offers the flexibility to draw up to 60% of the retirement corpus as a lump sum to meet financial life goals like children's marriages, housing, or draw down the lump sum in a staggered manner till one is 70 years old. The rest can be used to buy an annuity from any of the seven Irda-regulated annuity service providers. So, the NPS is probably the only wholesome, universal, technologydriven retirement planning product in the country today.

(The writer is the Chairman of the Pension Fund Regulatory and Development Authority)