LIC Saral Pension Plan No.862 is a new immediate pension plan launched on 1st July 2021. It is a Standard Individual Immediate Annuity Product.
Indian life insurance market currently has several individual immediate annuity products marketed by life insurers, with each product having its own features, terms and conditions and annuity options. With a view to having uniformity across Insurers, and to make available a product by all Life Insurers that will broadly meet the needs of an average customer, it is felt necessary to introduce a standard, individual immediate annuity product, with simple features and standard terms and conditions. Such a standard product will make it easier for the customers to make an informed choice, enhance the trust between the Insurers and the insured, and reduce mis-selling as well as potential disputes.
In view of this, IRDA gave the guidelines to insurers to launch a standard immediate annuity plan where the features will remain the same. Based on this, LIC launched LIC Saral Pension Plan No.862.
LIC Saral Pension Plan No.862 – Eligibility and Features
Let me now share with you the eligibility and features of LIC Saral Pension Plan No.862.
# Surrender Option:-
The policy can be surrendered any time after six months from the date of commencement, if the annuitant or the spouse or any of the children of the annuitant is diagnosed as suffering from any of the critical illnesses specified in the Policy Document, based on the documents produced to the satisfaction of the medical examiner of the Insurer. The list of critical illnesses may be revised from time to time by the Authority as needed. On approval of surrender, 95% of the Purchase Price shall be paid to the annuitant, subject to deduction of outstanding loan amount and loan interest, if any. On payment of surrender value, the policy stands terminated.
# Loan:-
Loan can be availed any time after six months from the date of commencement of the policy. The maximum amount of loan that can be granted under the policy shall be such that the effective annual interest amount payable on the loan does not exceed 50% of the annual annuity amount payable under the policy. Under the joint-life option, the loan can be availed by the primary annuitant and on the death of the primary annuitant, it can be availed by the secondary annuitant.
The interest on loan shall be at 10-year G-Sec rate per annum as at 1st April, of the relevant financial year, as published by M/s. FBIL, plus not more than 200 bps and shall be applicable for all loans granted during the period of twelve months, beginning 1st May of the relevant financial year.
The loan interest will be recovered from the annuity amount payable under the policy. The loan interest will accrue as per the frequency of annuity payment under the policy and it will be due on the date of the annuity. The loan outstanding shall be recovered from the claim proceeds under the policy. However, the annuitant has the flexibility to repay the loan principal at any time during the currency of the annuity payments.
Let me give you an illustrative example:- Let us assume Mr.A whose age is 60 years and his wife Mrs.A, whose age is 55 years invested in this policy for the purchase price of Rs.10,00,000 and opted for yearly pension option.
- Option 1 – Mr.A will receive Rs.51,650 (Approximate value) per year as long as he is alive. Once he dies, pension payment will stop there itself and his wife Mrs.A will receive Rs.10,00,000 as a lump sum.
- Option 2 – Mr.A will receive Rs.51,150 (Approximate value) per year as long as he is alive. Once he dies, then his wife Mrs.A will receive the same yearly pension of Rs.51,150 throughout her life. If she too dies, then the nominee will receive Rs.10,00,000 (the original purchase price).
LIC Saral Pension Plan No.862 – Should you invest?
LIC already offering two pension plans (one is immediate and another is deferred) LIC Jeevan Akshay VII and LIC New Jeevan Shanti. However, LIC was forced to launch this product mainly because of regulatory reasons. As of now, annuity rates are not available. Hence, it is hard to say anything about this product. However, by introducing such standard pension plans, IRDA simplified the life of buyers.
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Hi Basavaraj
I’m in a dilemma whether to invest in guaranteed plans of insurance companies which offer around 5% or to go for mutual funds that invest in mid/large caps.
What would you suggest in a decreasing interest rate scenario ..
Dear Sadanand,
May I know your requirement at first?
Hi Sir,
If you advise people based on mix and match to invest the earnings of such product will be useful.
For e.g if you invest 15 lks lumsum, you will get 6200 pension per month. Have a monthly sip of 6000 in blue chip fund. Assuming 12/14% returns of such blue chip funds, for 10/12 years, you will make around 15+ lks and got your invested money back. Now throughout life you keep getting 6200 which is great.
Dear Santosh,
Why this exercise of investing Rs.15 lakh lump sum and then do a SIP of Rs.6,000? Instead, why not put a lump sum in one go (based on risk appetite into debt and equity) and wait for 10 to 12 years? There are all gimmicks played by agents who are representative of LIC and MF distributors so that they earn the commission from both side.
One is safety of interest rates. The way interest rates are going down, it makes sense to lock in the interest for a lump sum money which is not an emergency fund.. I believe long run interest rates will settle at 4/5% max in 1/2 years..
So it’s a constant worry free income, better than investing in a home to get rent, and we have flexibility of investing such amount in SIP or anything of our choose and whenever we want we can rely back on monthly income without much of interest rate worry.
People who have put money 4/5 years back are enjoying 8% interest and for life where as now it looks like a dream. Same will be the opinion in next 3/4 years..
Dear Santosh,
Safety at what cost? In short-run obviously, we have to look for safety. However, in long term, obviously, we have to look for real return. Do your maths and let me know how investing in this product and reentering the amount into SIP is beneficial than the lump sum in one go. You are killing the conception of inflation by investing in such a product at first and delay will cost you a lot in long run.
Hi, let me explain you how I am doing –
I invested lump sum in LIC pension plan 5 years back with close to 8% interest and going to enjoy the monthly pension till my life..20K per month pension is invested in SIPs from last 5 years.. with market up from last 5 years my accumulated SIP itself is 15+ lks.. slowly planning to reduce the SIP in a year when market down trend start as I have the flexibility.. but my 8% returns still continue.. tell me is it not flexible?
The same we will say in next 5 years when interest rates are around 3/4% and think if I would have invested in this pension plan 5 years back……
Dear Santosh,
Does this 8% is TAX FREE for you? Rather than this circus, why not invest everything in long term. You pointed out that you reduce your SIP when the market is a downtrend. Is it possible for you to time the market perfectly? As per me, none can time the market perfectly.
is the pension under scheme LIC Saral Pension Plan No.862 taxable?
Dear Awatar,
Yes, obiviously.
sir iam lic agent bangslore always i read your blog coments on lic plan it is very usefull and easy to convince my clints.iwant to know what ls the return of interest lic verses/bank.peri year it is profitable to invest lic pension plan 862.pl replay regards h
rajadhekar.lic agent bangalore
Dear Rajashekar,
Comparing Bank FDs with such products is not correct. As the purpose of FD is different than such pension products.
I wonder how one can survive the old age with a pre-tax and pre-inflation return of 5.165% p.a. with yearly payout. It is absurd and mockery of the pension system in India. Post-inflation it is going to be anywhere between 2.165 to 1.165% (and mind it, this is at the basket-based CPI computation level/system whereas individual inflation will be much higher than that) and post income tax, if any, it would be nothing.
Dear Kamal,
I can understand the pain. However, one can rely on such products only for few years of short-term requirements (say like 5-10 years). For, 10+ years requirement, they can include equity to a certain extent and try to beat the inflation. Customizing to beat inflation as per our risk appetite is in our hands.