Like all other LIC products, Pension Plus also has a low-cost structure. Investors who want to invest money for their retirement and are ready to buy annuity on maturity or withdrawal should opt for this plan
EVER since insurance regulator Irda has introduced new guidelines for unitlinked pension plans (Ulips), insurance companies have stopped initiating pension plans in the market. One major reason to this is the minimum guarantee attached to this plan by the regulator. This guarantee includes 4.5% of return for the current year and thereafter 50 bps over and above the average reverse repo rate. The guaranteed interest rate is subject to a maximum of 6% and a minimum of 3%. So far Life Insurance Corporation (LIC) is the only company that has introduced a unit linked pension plan post September 2010. This plan is a low-premium plan offering two investment options (funds) including debt fund and mixed fund. The debt fund is purely debt oriented, while the latter has some exposure to equity.
COST STRUCTURE:
Like all the other products offered by LIC, this product too has a low-cost structure. The premium allocation charges are lower than the previous pension plan offered by LIC. Even the policy administration charge of the product is only Rs 360 for the whole year. However, this charge increases by 3% every year. What is the best about LIC is its low-fund management charges due to its large asset base. Fund management charges have a compounding effect, so a few basis points also make a difference. Considering these charges, if the fund were to generate returns at 6% and 10 % as mandated by the Insurance Regulatory and Development Authority (Irda), the net yield in the hands of investors after factoring the above costs would be 4.7% and 8.7% (approx.), respectively per annum.
BENEFITS:
The most prominent benefit of this product is the minimum guarantee attached to the product. This guarantee fixes a lower limit of return on investments on maturity. This policy is one of the few plans that offer various premium payment modes including monthly, quarterly, half yearly and annually. It also offers single premium payment facility for those interested to make one time investment. The plan also allows one to pay additional premium for investment purpose only.
CAVEAT :
Earlier, the pension plan was considered more of an investment scheme, but after the tight regulation, it is not possible to get the invested premium as lumpsum on early withdrawal. Two third of the accumulated corpus has to compulsorily be utilised for purchasing annuity. Hence, after the lock-in period of five years, an investor, who wants to withdraw money, has to purchase annuity.
PERFORMANCE & PORTFOLIO REVIEW:
LIC Pension Plus is only a month old. This scheme currently has an asset under management (AUM) of Rs 115 crore, which is invested into debt fund and mixed fund. Both the funds are debt dominated due to the requirement of guarantee returns. Mixed fund has exposure to equity market that is also limited to 15-35%. The debt fund concentrates more towards long-term maturity corporate bonds and government bonds. Large proportion of the portfolio has bonds with 15-20 years maturity.Since the scheme has been recently launched, most of the corpus is parked in the money-market instruments. Hence it is too early to comment on the fund's performance.
DEATH/MATURITY BENEFIT:
LIC Pension Plus does not offer death benefits. So in the case of demise of the policyholder, the nominee receives only the accumulated fund, whereas upon maturity, one third of the fund is given to the investor as lumpsum, which is fully tax-free. The balance two-third has to be compulsorily invested in annuity plan from either the same company or any other insurance company. The amount invested in annuity grows with a certain fixed percentage and investors receive a series of payment on a periodic basis. For instance, say a 30-year-old healthy male invest Rs 25,000 a year in Mixed Fund of LIC Pension Plan for a period of 20 years. Assuming the rate of return of 6% and 10%, the fund value will grow up to nearly Rs 824,315 and Rs 1,316,446, respectively, receivable at the maturity.
OUR VIEW:
LIC Pension Plus is a cost-effective plan with guaranteed returns, but may not suit the people with high risk appetite. Those who wish to invest money for their retirement and are ready to buy annuity on maturity or withdrawal may opt for this plan.
