There used to be a time, not too long ago, when most parents in India thought of their children as their retirement insurance, or budhape ki lathi (as they say in Hindi). No need to be worried about how to meet regular expenses once the individual becomes old and doesn’t bring home that monthly salary any more. After all, the grown-up kids would love to serve their parents with all the love and care, wouldn’t they?
Well, the times are changing. And while this piece, by no means, wants to cast an aspersion on today’s generation in terms of their desire to look after their parents, the cold reality remains that old individuals/couples are increasingly being left high and dry after their retirement.
And if you want to simply avoid such a scenario from ever arising, then a pension plan is something that you should think of. Also known as annuity schemes, these policies helps one preserve his current lifestyle by giving him a regular income after retirement. Suggested read: Pension plans in India
The ‘ICICI Pru LifeLink Pension SP’ plan from ICICI Prudential, a tie-up between UK insurance biggie Prudential and India’s ICICI, is one such pension plan–with the additional benefit of a life insurance. In other words, this is an insurance-cum-investment policy.
However, unlike traditional pension plans, the ICICI Pru LifeLink Pension SP is a unit-linked/market-linked insurance policy (ULIP)–meaning the premium paid by you is used to buy market-related assets such as bonds, in order to generate investment returns that would fund your pensions. Remember that the premium invested in markets is net of applicable charges (premium allocation charge) that are deducted by the company.
Let’s then look at some of the salient features of the plan to get a sense of what kind of death benefit and pension payment one can expect.
Key characteristics of ICICI Pru LifeLink Pension SP
1. Single-premium plan – One needs to pay the premium only when buying this retirement ULIP. So, if you have a lump-sum amount that you would like to park in some long-term investment, you can consider this scheme.
2. Flexibility to choose the pension date – The policy owner has the choice to determine the period from which he would like to receive the retirement benefit/annuity. However, note that one can’t get pension before the age of 45. Why? Because, the minimum entry age for this policy is 35 years (upper limit set at 70 years). Similarly, the vesting age can range from 45 to 80 years.
3. Guaranteed minimum Net Asset Value – The ICICI Pru LifeLink Pension SP plan invests your money in the Pension Return Guarantee Fund (PRGF) that commits to deliver an assured return by means of a guaranteed Net Asset Value of Rs. 19.10 at the time of vesting.
The PRGF seeks to honour its pledge by investing in a diversified pool of top-rated fixed income instruments such as debt (bonds), money market and cash.
However, the promise of a guaranteed minimum NAV lapses if you surrender the policy, or Death Benefit is awarded to your beneficiary in case of your death. In either of these circumstances, ICICI Pru will impose an annual surcharge of investment guarantee of 0.25% of the PRGF’s Fund Value towards adjusting the fund NAV.
It should also be kept in mind that the NAV applicable at vesting is the higher of the guaranteed NAV (Rs 19.10 for this plan) and the NAV on the date of maturity.
Here is an example –
|Minimum Guaranteed NAV of the PRGF (A)||PRGF NAV on the date of vesting (B)||Higher of A and B (C)||Number of units in PRGF on the date of vesting (D)||Amount payable at vesting (C x D)|
|Scenario 1||Rs. 19.10||Rs. 22||Rs. 22||10,000||Rs. 2,20,000|
|Scenario 2||Rs. 19.10||Rs. 18||Rs. 19.10||10,000||Rs. 1,91,000|
4. Death Benefit – In the event of the life insured’s demise during the term of the policy term (fixed at 10 years), the company will pay out the Sum Assured plus the Fund value at the time of the individual’s demise.
5. Five pension options – The policyholder has the option of selecting the pension plan, as he deems fit, three months prior to vesting of his policy. Here are the five options available to him–
a. Pension option 1 – Annuity without return of purchase price (purchase price is nothing but the premium one has paid)
b. Pension option 2 – Annuity with return of purchase price
c. Pension option 3- Joint Life, Last Survivor with return of purchase price. Put simply, this option is for those who want to take life cover for two individuals (e.g. a couple), with the surviving spouse getting the annuity after his partner’s death–apart from the premium.
d. Pension option 4 – Joint Life, Last Survivor without Return of Purchase Price
e. Pension option 5 – Annuity guaranteed for 5, 10, 15 years
6. Loyalty Addition – For premium payments of at least Rs. 50,000, the insurer will add as much as 2.5% of Fund Value to your corpus at the end of the 10th policy year.
7. Tax benefits – One can claim tax exemption for the premium paid and benefits received under the policy, under section 80CCC and 10(10A) of the Income Tax Act.
8. Surrender – You are not allowed to surrender/forfeit the policy before the completion of five policy years, i.e. the plan has a lock-in period of 5 years. However, ICICI Pru won’t levy any surrender charges as and when you decide to exit.
One should also note that the guaranteed NAV is not applicable for policy being surrendered. In such an event, the policyholder is entitled to only up to a maximum of one-third of the surrender value in lump-sum and the remainder of the Fund Value must be used to buy an annuity.
Sample case –
|Premium Paid (in Rs.)||2,00,000|
|Number of Units||20,000|
|Guaranteed NAV (in Rs.)||19.10|
|Guaranteed PRGF Value (Guaranteed NAV x Number of Units) (in Rs.)||3,82,000|
|Policy term (in years)||10|
|Annual Pension in case of Pension option 1 (in Rs.)*||28,983 (assuming a Gross Yield of 10%)||25,925 (assuming a Gross Yield of 6%)|
|Annual Pension in case of Pension option 2 (in Rs.)*||26,224 (assuming a Gross Yield of 10%)||22,437 (assuming a Gross Yield of 6%)|
|Annual Pension in case of Pension option 5 (in Rs.)*||28,780 (assuming a Gross Yield of 10%)||25,743 (assuming a Gross Yield of 6%)|
|Death Benefit (for Pension option 1) during the 1st year of the policy||2,04,819 (assuming a Gross Yield of 10%)||1,97,358 (assuming a Gross Yield of 6%)|
|Death Benefit (for Pension option 1) during the 5th year of the policy||2,78,838 (assuming a Gross Yield of 10%)||2,31,568 (assuming a Gross Yield of 6%)|
|Death Benefit (for Pension option 1) during the 10th year of the policy||4,21,140 (assuming a Gross Yield of 10%)||3,76,701 (assuming a Gross Yield of 6%)|
* The pension amount is decided by the insurance company in accordance with annuity rates set by the industry regulator, I.R.D.A, at the time of the policy maturing.