Best Retirement Plan In India – Pension, The Need Of Your Future

I don’t think I need to emphasize how important it is to plan for your retirement. Searching for the best retirement plan in India is not sufficient.

Have you thought about your financial requirements post-retirement? Some important questions to ponder about –

  • How much money will I need on a monthly basis when I am 68 years old?
  • How will I handle a financial emergency?
  • Have I made financial arrangements in case of my spouse gets hospitalized when we are retired?

best retirement plan

How much you will need in retirement?

Let us assume that currently, your monthly expenses are about Rs. 25,000 per month and that you will retire about 30 years from now.  With a 6% annual inflation rate, you will need approximately Rs. 1,43,000 per month post-retirement in the year you retire.

It will obviously increase in the succeeding years due to inflation.  If you do not expect a similar lifestyle when you are retired, let us assume that you will incur 80% of the expenses today. In this case, you will need about Rs. 1,14,000 per month in the year of retirement.

How do you ensure that you are covered financially post-retirement? By planning your retirement well in advance. You can decide on the best investment products to invest in that can protect you from financial uncertainty during retirement.

Check – 5 Steps for Happy Retirement

Best Retirement Plan in India

Here are a few products and examples of those products which can be used to plan for your retirement.

Before starting let me share – we don’t suggest mixing investment & insurance.

Traditional Pension Plans 

A  traditional pension plan is an investment product usually managed by Life Insurance companies. The individual will buy a plan and pay the premium either on a periodic basis or as a lump sum amount. There are different types of traditional pension plans –

Immediate Annuity – The individual receives payments immediately after purchase of the product.

Deferred Annuity – The premium will be paid on a regular basis and the individual can decide when to get the pension. It can be taken on a regular basis or as a lump sum amount.

There are other sub-options available within these two main options whereby the individual can decide whether he/she wants a pension for life or whether the spouse should get the pension after the individual’s death or if the pension is to be given for a certain timeframe.

Best Retirement Plan of LIC

LIC Jeevan Akshay is considered as one of the best pension plan after retirement by many. But we are not writing much on that here because we already have done a detailed review (also discussed a lot about annuity) – you can check –  new LIC Jeevan Akshay annuity plan

Here are examples of best private retirement plans –

PlanMax Life Guaranteed Lifetime Income Plan HDFC Life Pension Guaranteed Plan
Type of PlanA single purchase price traditional retirement plan.

There are four options for annuity payouts.

There are options for Return of Premium on death.

Single Premium Annuity Product.

There are plans for deferred annuity and Immediate Annuity. It is available for single life and joint life basis.

PayoutGuaranteed fixed income throughout the life of the subscriber.

If it is a joint annuity product, fixed income will be payable until at least one subscriber is alive.

Different options for payouts/ annuities based on different time periods as long as the subscribers are alive.
Minimum Purchase Price/PremiumThe minimum purchase price is Rs. 1,00,000The minimum purchase price is Rs 76,046 for Deferred Annuity

 

The minimum purchase price is Rs 160,261 for Immediate  Annuity with return of purchase price.

 

 

Traditional pension plans offer guaranteed returns. But their terms are inflexible and the annuity may not be enough to sustain the lifestyle one is used to as most plans offer a return between 4%-7%.

For example, the HDFC pension joint annuity plan purchased for Rs. 1 crore will give an annuity around Rs. 7,00,000 per year.

If you purchase a joint annuity plan of Max Life Guaranteed Lifetime Income Plan, you will receive around Rs. 6,70,000 per year

Moreover, annuity proceeds are taxed. So you might want to compare different options and analyze your reasons for buying a traditional pension plan.

Read – Review of LIC New Jeevan Nidhi Pension Plan

ULIP – Pension Plans

Unit Linked Pension plans are similar to traditional pension plans but add the flavor of equity. These products invest the amount collected from subscribers in bonds, stocks etc. The returns are market linked.

Even maturities of these products are expected to be invested in annuity products.

Here are briefs on a couple of products which will give you an idea about them –

Empower Pension – SP Plan is a ULIP from Birla Sun Life Insurance. It is a single premium plan. The minimum premium is Rs. 1,00,000. The investor can choose a risk profile and the funds will be invested based on the risk profile.

At the end of the term, the investor will receive the greater of guaranteed vesting benefit or the fund value on vesting. The investor also has the option to convert to a deferred pension plan as available or extend the period provided the investor’s age is below 80 years. The disadvantages are that the risk profile cannot be changed and there is no life cover.

HDFC Life Click 2 Retire Plan is a ULIP which has single and multiple premium payment options. The minimum premium amount is Rs. 24,000. A death benefit is available. At the end of the term, the investor will receive the greater of guaranteed vesting benefit or the fund value on vesting.

The investor also has the option to withdraw 1/3rd amount and buy an annuity plan from HDFC Life with the balance or defer the vesting period provided the maximum vesting age remains at 75 years. 100% of the premium paid is invested. The investor has three options on how his funds should be invested based on his risk profile.

ULIP pension plans are more expensive as compared to traditional pension plans. Most of them do not offer a lifetime income flow and the returns can be erratic. If you would lie to reduce tax liability on maturity, you are forced to buy an annuity plan which might or might not be beneficial to you.

On the other hand, ULIPs have the potential to give better returns and have options to exit from the product easily. The disclosure norms are more strict for ULIPs and that ensures transparency.

Check – Is Rs 1 Crore enough to Retire?

Mutual Fund Retirement Plans

Mutual funds offer retirement plans or pension plans. These plans invest in a mix of equity and debt products depending on the investment objective of the product. The key features are –

  • Investors can invest a lump sum amount or through the SIP route. Withdrawals can also be on a lump sum basis or through SWPs.
  • These funds have a lock-in period of 5 years or till the retirement age(whichever is earlier).
  • Exit load on premature withdrawal in most funds.
  • The investment usually also qualify for Section 80C benefits under the Income Tax Act.
  • Unlike other products, one does not need to buy annuity products to withdraw the corpus
  • Returns are taxable
  • The standard retirement age is taken as 58 years. Post-retirement, the investor can make a lump sum withdrawal or opt for regular payments. The balance units after the withdrawals will continue to be invested and grow.

Let us look at a couple of products in detail –

NameReliance Retirement Fund – Income Generation Scheme (G)UTI Retirement Benefit Pension Fund  (Growth Plan)
Asset Allocation19% of the corpus – invested in equity

81% corpus – mainly invested in debt and held as cash

38% of the corpus – invested in equity

62% of the corpus -mainly invested in debt and money market instruments

1 Year Returns2.10%-1.10%
3 Year Returns6.30%8.20%
Expense Ratio2.25% (Oct 2018)1.91% (Oct 2018)
Exit LoadNo Exit Load if you withdraw after the retirement age else the exit load is 1%.Redemption/Switch within 1 year – 5%

Redemption/Switch between 1 & 3 years – 3%

Redemption/Switch between 3 & 5 years – 1%

Redemption/Switch after 5 years or after retirement age (58 years)whichever is earlier  – 0%

 

MF Retirement plans have greater potential for returns and capital appreciation. If you use the SIP route, you will be coerced to be a disciplined investor.

Investments in MF retirement plans also qualify for Section 80C benefits under the Income Tax Act.

On the other hand, there is a higher element of risk involved and pre-mature withdrawal is penalized. Expenses involved will also be more as compared to traditional pension plans. Moreover, you do not have much flexibility in deciding the asset allocation. It is probably better to invest in Mutual Fund schemes that satisfy your investment objectives and have a portfolio that is suited to your requirements.

Do you have a Post Retirement Plan?

National Pension Scheme

NPS or National Pension Scheme is a long-term retirement focused investment product. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA). Here are the key features –

  • An individual can invest in NPS between the ages of 18 and 60 years.
  • Minimum investment amount per year – Rs. 6000 and  Maximum investment amount per year – Rs. 2,00,000
  • The employer contributes an equal amount as the employee has invested in the scheme. It is mandatory for Central Government and State Government employees and optional for others.
  • 80% of money withdrawn before one becomes 60 years old must be used to buy the annuity for a monthly pension. If the amount is withdrawn after the age of 60 years, 40% of it should be used to buy the annuity and the rest can be deployed as per the person’s wish.
  • Amount contributed towards NPS qualifies for deduction up to Rs. 1,50,000 under Section 80CCD. Another Rs. 50,000 can be treated as a deduction.
  • The annual returns from NPS are also tax- free. When the amount is withdrawn before or after the age of 60, the amount left after buying the annuity is taxed. The pension received on a monthly basis will be taxable as per the tax-slab that the person falls under.
  • The NPS subscriber can determine the asset allocation for his investment.

NPS is a good long-term investment product. The returns are good and the costs involved are minimal. Moreover, the investment is managed by experts.

During the deferment period, one has to invest till 60 years and then start getting an annuity from a life insurance company on 40 percent of the corpus, while the balance can be withdrawn. The return during the deferment period and neither the annuity (pension) are guaranteed and entirely depends on the underlying asset classes which can be equity, corporate. Check – National Pension Scheme Benefits 

Atal Pension Yojana

Atal Pension Yojana is a pension scheme mainly aimed at the unorganized sector. It is for the people with the blue collared jobs. In many companies, these employees do not get any pension. This scheme allows people between 18 years and 40 years to choose a pension based on the contribution done.

There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60. The pension will be determined based on the individual’s age and the contribution amount. On the death of the subscriber and subscriber’s spouse, the nominee will receive a pre-determined corpus. The amount collected will be invested as per regulations.

Here is an example of different amounts that are required to be paid for starting the account at different ages for different pension amounts.

Subscriber DetailsFor Monthly Pension of Rs. 2000 For Monthly Pension of  Rs. 4000
Age of Joining the Scheme (Years)Contribution Period (Years)Monthly ContributionReturn of Corpus To NomineeMonthly ContributionReturn of Corpus To Nominee
2040100340000198680000
3030231340000462680000
3525362340000722680000
40205823400001164680000

(Sample data is listed here)

If you are 30 years old, you would contribute a total of Rs. 83,160 and the total returns considering a life expectancy of 80 years will be Rs. 8,20,000. But do remember the inflation factor and that the corpus will be received by nominee after the death of the subscriber.

Must Read – Investment options for retired persons in India

Best retirement plans for Individuals

It is important to plan retirement as early as possible so that we are secure from a financial aspect. There are many investment products available for retirement planning. Choose to invest based on their features and how they suit your requirements.

Normally we suggest our clients that don’t mix insurance & investment. We also suggest that there are a lot of good investment products before retirement so don’t get stuck with your hard earned money in a long-term product. You can accumulate assets & on retirement, you can decide if you really like to buy an annuity.

We have years of experience in Financial & Retirement Planning. We will help you get the most of your Retirement.

Don’t just Retire. Live a Happy and Healthy Retired Life.

Contact us Today

So what do you think which is the best retirement plan? If you have any questions regarding retirement or pension plans – add in the comment section.

14 COMMENTS

    • Dear Ajay,
      Even we don’t suggest mixing insurance & investments. But these are the options that are available – annuity & NPS is controversial 😉

  1. Have you considered Jeevan Shanti in your analysis? That seems to be a really good plan from LIC specially if you choose deferred annuity.

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