Pension Plans

Please read the earlier articles for continuity

We have seen in the earlier articles the retirement pension given by the Govt R&D institution and the benefits is available till one's lifetime and thereafter to his wife till her life time. The irony is that this is neither reflected in the Govt institution's pay packages effectively nor the leaving employees understood this great benefit.

The need for retirement benefit assumes more significance in today's fast paced life with children going away from the parents, increased standard of living and the desire to continue the same life style etc. The essential payments like medical bills, telephone bills, and house hold expenditure are recurring every month and are unavoidable.

Many of them recognize the need for regular monthly income only that time. The pension plans are meant to provide regular income to individuals after retirement. These plans are offered by insurance companies like LIC, SBI life, reliance, and many other private players.

LIC offers the traditional plans, most of other private companies offer ULIP(UNIT LINKED INSURANCE PLANS) pension plans where the returns are based on equity. These plans offered by these companies are regulated as per the guidelines issued by IRDA (INSURANCE REGULATORY AUTHORITY) the apex body in the insurance sector

When an individual opts for a pension plan, he has to pay a fixed amount known as premium to the insurance company over a predetermined period of time, the term of the policy. At the time of opting for the pension plan, the policy holder defines his retirement age (vesting Age), and after that period he starts getting the annuity(monthly income )till his life time.

The premium paid is eligible for deduction under section 80 C of the Income Tax Act upto an upper limit of Rs.1.00 lakh. The ULIPs have become popular nowadays due to the awareness, marketing by these companies and the continued bull run in the Indian stock markets.
In the last article example, the pension receivable by the govt servant will be Rs 1.75 lakhs per month. We will just calculate the premium payable to equate the same to have the comparsion.

I am just reproducing the illustration given by a life insurance company.

Age(yrs)	30
Policy term (yrs)	30
Vesting(retirement) age	60
annual premium (Rs.)	200000
Death benefit	Nil
Fund value at the end of 30 years	Rs.
6% return	13844040
10 % return	29170660
Annuity
6 % return	1354340
10 % return	2860920

In the above example, if a person pays Rs. 2.00 lakhs per annum for 30 yrs up to the age of 60 yrs, his corpus will grow at Rs. 1.38 crore at 6 % return or Rs.2.91 crore at 10 % return. If he invest the same in annuity he will get Rs. 1354340 per year or Rs 112861 per month with 6 % or return or Rs 2860920 per year or Rs. 238410 per month till his life time. So, as per the above example to get the pension one has to contribute Rs.2.00 lakhs per annum or Rs. 16666 per month till his retirement.
The premium will vary with increase in pay which will result in increase in pension and has to be worked accordingly as per his grade or scale to arrive at the correct decision. Whether this cost has been factored by the employees before they leave?
The above benefit, illustration also does not guarantee such return as per the conditions enclosed and come with riders.
We will see
I welcome your comments