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Finally, a Pension Plan That Ticks All Your Boxes

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March 07, 2017

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Tick, tock, tick, tock, the clock for the countdown to your retirement has begun ticking in your mind. Unlike your father's generation when many employers provided pension, you need to create a pension for yourself. So, how do you get started creating a regular retirement income?

There is much more to pensions than just getting the best rate for your retirement savings. It's another matter that getting the best rate is a challenge by itself. Here are some key things to consider while planning for regular retirement income.

Pension's 4 key attributes

1. Stable and predictable income 

In retirement, while your salary ceases, your regular expenses continue. So, it is critical to ensure that the regular retirement income or pension is guaranteed or stable.

2. Coverage of spouse and family members

In your absence, your spouse and family members may continue to need the regular retirement income. You need to evaluate how critical is this need for you.

3. Access to money during emergency

As you progress in retirement, there is always a health or other emergency round the corner. Your regular income investment needs to be accessible at such times.

4. Retirement income top up

As you progress in retirement, inflation takes a toll on what a regular income can buy. For instance, if Rs 30,000 of monthly income suffices to cover regular family expenses at age 58, at an annual inflation rate of 5%, in the 15 years, or age 73, it would buy what Rs 13,899 buys at age 58. This is the reason why pensions need top ups. You need to calculate how much you will need for your retirement, depending on your lifestyle the amount may differ.

Keeping these attributes in mind, on evaluating existing regular retirement income options, you realise the challenge at hand.

Limitations of existing options

1. Fixed deposits

many people look forward to fixed deposits (FDs) for regular retirement income. Unfortunately, it has some significant limitations.

Being of a fixed tenure, the income is available only during the FD tenure. Once the tenure is over, you have the task of looking around for another FD, typically with the best interest rate. The task gets more complicated if investments are made in different FDs. Things can still get more daunting during falling interest rates as falling incomes mean cutting back on expenses. 

2. Debt and other mutual funds

the amount of debt fund dividend and the consistency of their declaration depend on their performance. Thus, the income is neither predictable and can also be inadequate. The same is true for hybrid mutual funds like monthly income plans (MIP). While, you can do a top-up the investment and get emergency access to money, regular income continuing for spouse and heirs is absent. If your objective is accumulating money for retirement, you may need to decide if you want to take this risk.

3. Life insurance annuities

Annuities provided by life insurance companies provide regular income from the retirement savings. The person has the option to choose among various annuity options ranging from annuity for life, for a particular period of time, annuity payments to spouse after demise and so on. Annuities bring a certain sense of predictability to the regular income needed in retirement.

At the same time, in annuities offered in the traditional form, you get locked in to the annuity rate. Also, it is not possible to enhance the annuity payout by adding more money to the policy and emergency access is difficult because annuity products usually do not allow surrender.

Clearly, as you survey the regular retirement income options, you feel the need for an option checks all the boxes. This is where HDFC Life Pension Guaranteed Plan, a new pension plan from HDFC Life, scores. 

How HDFC Life Pension Guaranteed Plan Scores Big

1. Choice of deferred and immediate annuity

In this plan you have the option of entering the plan up to 10 years before retirement, with the earliest permissible age being 45 years. The sooner you enter, higher is the guaranteed annuity amount once it starts.You can also kickstart the regular income right away with the immediate annuity version.

2. Starts retirement income creation

In the lead up to the retirement, you can enhance your annuity payable by using top-ups in the policy at your convenience.  

3. High annuity guarantee

The deferred annuity option provides high annuity amount guaranteed for life. For instance, a current annuity rate of 6.5% starting immediately at age 60 becomes 9.25% if you are 55 and decide to start annuity after 5 years from now or 12.9% % if you choose to start annuity after 10 years.

4. Tax benefits

This benefit of predictable income from the plan is in contrast to fluctuating incomes from traditional annuities and FDs where you deal with changing annuity rates and interest rates, respectively. This benefit gets bolstered by tax benefit for the growth of the money during the deferment period of 10 years. You only start paying the tax applicable to you when you start receiving the regular income.

5. Guaranteed additions

Apart from tax benefits, the retirement savings in this plan also grows due to guaranteed additions.

6. Spouse coverage

you can secure a guaranteed income for self and spouse as long as one of you is surviving. Since there are no upper investment limits as in the case of options like Senior Citizens Savings Scheme (Rs 15 lakh) and Post Office Monthly Income Scheme (POMIS) (joint account: Rs 9 lakh), you can make a higher initial investment with a lifetime rate guarantee.

7. Emergency access

you can get access to your money during emergencies through surrender under annuity with return of purchase price and deferred annuity with return of purchase price versions. Deferred Annuity version also allow for policy loan during the deferment period

To sum up, for regular retirement income or pensions, you need to have basic features in your pension investment. The good news is that HDFC Life Pension Guaranteed Plan goes a long way in lending you a helping hand to stay financially independent lifelong.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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