Pension Fund Regulatory and Development Authority PFRDA was established by Government of India on 23rd August, 2003. It acts as a regulator for the pension sector.
Introduction Pension plans (also referred to as retirement plans) are offered by insurance companies to help individuals build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity. It is pension plans that provide individuals with a regular income in their golden years. It will provide the financial security to pursue unfulfilled dreams.
History Traditionally, employers provided for employees retirement through pension plans. Today, many companies have switched to defined contribution plans, requiring employees to provide for their own retirement needs.
The components to be taken into account when calculating your retirement corpus are: ~ Your current age ~ Expected age of retirement ~ Life expectancy ~ Years after retirement ~ Current earnings ~ Expected annual growth (in percentage) in income ~ Annual income at retirement age ~ Rate of return on retirement corpus (in percentage) ~ Inflation rate (percentage) ~ Inflation adjusted rate of return/Real rate of return (in percentage)
PENSION PLANS CLASSIFICATIONS Immediate Annuity plans, It start paying you the annuity right from day one once you make a lump sum payment. It’s a simple product which is not so much popular in India like deferred annuity plans. Deferred Annuity, In this a policyholder needs to pay a regular premium for a certain number of years. Once he/she retire, then start getting pension income.
Options available to individuals on pension plans Annuity payable for life: The annuitant is paid a fixed sum at pre-decided intervals throughout his life. The pension ceases as the annuitant dies. The quantum of pension payable here is the highest. It can also be known as life annuity and is suitable for someone who does not have any family obligation to provide income after his death.
Life annuity with fixed period guarantees: Also known as guaranteed pension, this type of annuity ensures that the pension is payable for a certain period and thereafter as long as the annuitant is alive. Shorter the guarantee period, higher is the pension. The pension payable under the five-year guaranteed option is higher than the pension payable under 20 years.
Joint life & last survivor annuity: This option ensures that the annuity is paid till either of the annuitant or his/her spouse is alive. Some insurers have capped the amount at 50% payable to the survivor, when the annuitant dies. This type of pension is ideal when the annuitant intends to provide for a regular income to the spouse. Joint life pension is determined after taking into account the age of both the annuitant and the spouse.
Annuity with return of purchase price: This is an extension of annuity payable for life. The annuitant enjoys the pension till he dies. The pension ceases as the annuitant dies and the purchase price is paid to the nominee of the deceased annuitant. However, the pension payable under this option is less than the pension payable under the first option.
Life annuity increasing at a fixed rate: This option is also an extension of the life annuity. The annuitant is paid a sum which is revised upwards by a certain percentage throughout his life. For example, the annuity is increased at a simple rate of 5% each year. This is good for those who retire early and expect to live a long retired life and prefer an adjustment for inflation.
ICICI STAR UNION HDFC Life LIC SBI Life – Prudential Dai-ichi Pension (Pension Plus) (Lifelong (New Dhruv Super Plus Pension Plus) Tara)Product type Regular Plan Unit Linked Unit-Linked Unit Linked non participating traditionalMinimum 6000 12000 24000 15000 7500annualpremium(Rs)Minimum 50000 150000 500000 100,000 50000Cover (Rs)Min-Max 5yrs-30yrs 10-52 years 10-65 yrs 10 yrs 5-40 yrsTenure(Yrs)Min –Max 50-70 years 40-65 years 55-75 yrs 40-85 years 40-70 yrsVesting age(yrs)Riders Critical Illness Accidental death & Death rider Accident & Benefit Rider permanentAvailable Accident and disability and Sickness Disability Benefit critical illness RideLife Cover Yes Yes Yes Yes NO