HDFC Life Pension Guaranteed Plan – Should you invest?

HDFC Life Pension Guaranteed Plan is claimed to be unique immediate and deferred annuity plan which many feel offers around 11% to 12% GUARANTEED pension during your retirement. Is it true to get such high pension from this product? Let us check the reality.

What is the difference between an immediate annuity and deferred annuity plans?

Before proceeding further, first, let us understand the meaning of immediate annuity and deferred annuity plans.

# Deferred Annuity Plan-

Let us assume you are 30 years of age and planning to retire at the age of 50 years. Now you start investing in such deferred annuity plan. Because your retirement is not immediate. Once you reach your retirement age of 50 years, then the annuity or pension will start. Hence, you are deferring annuity to match with your retirement age.

# Immediate Annuity Plan-

Let us assume you are 50 years of age and retiring today itself. Also, you have accumulated the retirement corpus to generate the pension or annuity. In such situation, you have to look for immediate annuity plan. Because your annuity is about to start.

HDFC Life Pension Guaranteed Plan Eligibility

Now let us concentrate on HDFC Life Pension Guaranteed Plan eligibility.

You noticed that for immediate annuity plans the minimum age is 30 years and for deferred annuity plan the eligibility is 45 years and above.

HDFC Life Pension Guaranteed Plan -Types of Annuity available

HDFC Life Pension Guaranteed Plan offers you three types of annuity features.

a) Immediate Life Annuity Option

This option is available on both single life and joint life basis.

# Single Life

• The annuity will be payable in arrears as per payment frequency is chosen by you, for as long as the annuitant is alive.

• On the death of the annuitant, the annuity payments will cease and no further benefits will be payable.

# Joint Life

• The annuity will be payable in arrears as per payment frequency is chosen by you, for as long as either of the primary or the secondary annuitant is alive.

• On the death of both annuitants, the annuity payments will cease and no further benefits will be payable

b) Immediate Life Annuity with Return of Purchase Price Option

This option is available on both single life and joint life basis.

# Single Life

• The annuity will be payable in arrears as per payment frequency is chosen by you, for as long as the annuitant is alive.

• On the death of the annuitant, Death benefit4 is payable as a lump sum to the nominee and no further amount will be
payable. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

# Joint Life

• The annuity will be payable in arrears as per payment frequency is chosen by you, for as long as either of the primary or the secondary annuitant is alive.

• DThe death benefit is payable as a lump sum to the nominee, on later of the deaths of the two annuitants. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

c) Deferred Life Annuity with Return of Purchase Price Option

This option is available on both single life and joint life basis. Deferment Period may be between 1 to 10 years, as chosen by you at inception. The annuity rate shall be as guaranteed at the inception of the Policy.

# Single Life

• The annuity will be payable in arrears post deferment period as per payment frequency is chosen by you, for as long
as the annuitant is alive.

• On the death of the annuitant, the death benefit is payable as a lump sum to the nominee and no further amount will be payable. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

# Joint Life

• The annuity will be payable in arrears post deferment period as per payment frequency is chosen by you, for as long
as either of the primary or the secondary annuitant is alive.

• The death benefit is payable as a lump sum to the nominee, on later of the deaths of the two annuitants. Upon payment of the death benefit, the policy shall terminate and all other benefits shall cease.

Death Benefits in HDFC Life Pension Guaranteed Plan

# In Immediate Annuity Plan-No death Benefits.

# Immediate Life Annuity with Return of Purchase Price Option-100% of the Purchase Price of the annuity.

# Deferred Life Annuity with Return of Purchase Price Option-The death benefits are as below.

Higher of
• Purchase Price + Guaranteed Additions(GA) – Total Annuity Payouts till date of death
• 110 % of Purchase Price where, GA = Purchase Price * Annuity Rate/12 And are accrued at the end of every policy month during the deferment period. GA stops accruing at the end of the deferment period.

Surrender Benefits in HDFC Life Pension Guaranteed Plan

This plan offers surrender benefits and are as below with respect to annuity option you choose.

a) Immediate Life Annuity Option (Single and Joint life option): Surrender not allowed.
b) Immediate and Deferred Life Annuity with Return of Purchase Price (Single and Joint life option):
Surrender Value shall be equal to the Present Value (PV) of expected future benefits discounted at the then
prevailing interest + 2%.

Other Features of HDFC Life Pension Guaranteed Plan

• This plan offers nomination facility.
• There are no maturity benefits under this plan.
• The policy loan is available on in case of  Deferred Life Annuity option.

HDFC Life Pension Guaranteed Plan – Should you invest?

# Let us take an example of a person who is aged 50 years and looking for first annuity option (immediate life annuity) and investing Rs.1,00,000. The annuity rate is 7.05% and 7.32% for Rate A and Rate B (I am not sure what the difference as they have not explained in detail). However, if you compare the same with LIC’s Jeevan Akshay VI, I found that the annuity rate is 7.47%. Hence, I still feel in case of immediate annuity plan, LIC’s Jeevan Akshay VI is the winner with plenty of options.

# Let us take an example of a person who is aged 45 years and looking for third annuity option (Deferred Life Annuity with Return of Purchase Price Option) and with a deferment period of 10 years. This means he will invest today and wait for next 10 years. Once he reaches the 55 years of age, then he will start getting this pension. In such situation, the rate of annuity is mentioned as 11.54% and 12.17% (for Rate A and Rate B). EYE CATCHING RIGHT? 11% t0 12% GUARANTEED PENSION for life is everyone’s dream. But hold on.

The biggest catch in this plan is that you are investing today in case of deferred life annuity pension, but you will receive the returns only after 10 years.

Hence, let us assume that you are currently 45 years of age (this is what the minimum age to enter this feature of annuity) and investing this Rs.1,00,000 in a 10 years bank FD. I am considering the FD rate of around 6% (excluding the taxation).

Therefore after 10 years, the Rs.1,00,000 will be Rs.1,79,084. At maturity of FD, your age will be 55 years. Hence, let us consider now the same annuity option with considering your age as 55 years but DEFERREMENT PERIOD as 1 years only, then the return % is 6.7% and 6.97% (for Rate A and Rate B).

Hence, what I am trying to say is that 11% or 12% of GUARANTEED PENSION for life is eye-catching. However, the money you invest today will be with them for the next 10 years without giving you a single rupee back.

If you believe that your pension is GUARANTEED for 11% to 12% returns, then for that you have to invest today and forget up to your retirement. Hence, in reality, this is not the REAL 11% or 12% return. It is less than that and to be frank not cross the LIC’s Jeevan Akshay VI annuity rate.

# As per current income tax benefits, the annuity you will receive will be taxable income as per your tax slab. Hence, it will further reduce your income.

Conclusion:-This plan launched with the word GUARANTEED pension with around 11% to 12% in case of deferred annuity plans. But silent on mentioning that your money will be with them up to the deferred period closure. Hence, the actual return from this annuity will be around 6% to less than 8% for the various age group.

When you compare the annuity rate of this product with LIC’s Jeevan Akshay VI, then I found the LIC’s rates are most better than this product.