Many investors buy pension plans so that they continue to get some income even after retirement. Salary will stop after retirement. But the income will start from the pension plan.
Which pension plan should you take?
There is no dearth of pension plans. National Pension Scheme (NPS) is one option. LIC and other insurance companies have also started many pension plans.
In this post, we will discuss SBI Life Saral Pension plan and see whether you should buy this pension plan.
SBI Life Saral Pension Plan (SBI Life Saral Pension Plan in Hindi)
Non-Linked Participating Traditional Pension Plan (I do not like such plans)
You can also add life insurance up to Rs 50 lakh to this plan. If you add this rider, the policy will also pay the sum assured in case of death during the term. But you do not need such a rider.
Reversionary bonus is guaranteed for the first five years. Nothing particularly useful.
You have to pay the premium for a certain number of years. When the policy matures (maturity date/vesting date), you can withdraw some money in lump sum. From the remaining plan, you will have to buy an annuity plan. LIC Jeevan Shanti is an annuity plan. You will get lifelong pension from annuity plan.
SBI Life Saral Pension Plan: What happens at the time of maturity (SBI Life Saral Pension Plan: Maturity)
At the time of maturity of the plan, your amount will be deposited as follows:
Sum Assured on Vesting/Maturity + Vested Reversionary Bonus + Terminal Bonus, if any
Reversionary Bonus is announced every year. Every year this bonus gets added to your policy.
Terminal Bonus is also declared every year, but it is applicable on your policy only in the year the policy matures (or the investor passes away). Terminal Bonus is expressed as a percentage of Vested Reversionary Bonus.
At the time of maturity you will get 3 options:
#1 You can withdraw 1/3rd of the deposit amount (accumulated fund) in lump sum. With the remaining amount you will have to buy an annuity plan.
Suppose the amount including bonus etc. is Rs 10 lakh, then you can withdraw the amount up to Rs 3.33 in lump sum. At least Rs 6.67 lakh will have to buy an annuity plan. Pay attention, if you want, you can buy an annuity plan with the full amount.
Recently, IRDA has increased the lump sum withdrawal amount from 1/3rd to 60%. It has to be seen when it is applicable in this policy.
#2 You can buy a single premium deferred pension plan with the entire amount.
Or
#3 If you are below 55 at the time of policy maturity, you can extend your policy term till the age of 70 years. If you do so, you will have to continue paying the premium.
SBI Saral Pension Plan: Tax Benefit and Tax at the time of maturity (SBI Life Saral Pension Plan: Tax Benefits)
By investing in this SBI pension plan, you will get tax benefit of up to Rs 1.5 lakh under section 80CCC. Note that this tax benefit comes within the limit of Rs 1.5 lakh under section 80C.
The amount you withdraw in lump sum at the time of maturity, no tax has to be paid on it. As written above, you can withdraw 1/3rd amount in one lump sum. You will not have to pay any tax on this amount.
With the remaining amount, you have to buy an annuity plan. You do not have to pay any tax on this amount also. But the income that comes from this annuity plan, you will have to pay tax according to your tax bracket.
If you surrender the plan before the completion of the policy term, then there is a big problem. If you have availed tax benefit under section 80CC for investing in the plan, then you will have to pay tax on the amount you get.
SBI Saral Pension Plan: How will the returns be?
Let’s try to guess it with the help of examples.
A 35 year old man buys Rs.10 lakh (Sum Assured on Vesting/Maturity). The term of the policy is 25 years. The premium would be Rs 33,443. Including GST, the premium will be Rs 34,948 in the first year and Rs 34,196 in subsequent years.
As we saw above, your deposit amount will depend on 3 factors.
Sum Assured on Maturity/Vesting
Vested Reversionary Bonus
Terminal Bonus (Terminal Bonus)
We know that Sum Assured on Maturity/Vesting is Rs.10 Lakhs. Now there is no guarantee of bonus. But we can get an idea by looking at the previous years’ bonus. The reversionary bonus ranged from 3.0% to 3.25%. Terminal Bonus was 15%. Note Terminal Bonus is expressed as a percentage of Vested Reversionary Bonus in this plan. Also you do not get terminal bonus every year. Available only in the year of maturity.
Terminal Bonus (15%) = 15% * Rs 8.125 Lakh(Vested Reversionary Bonus) = Rs 1.22 Lakh
Total corpus at the time of maturity/vesting = Rs 10 lakh + Rs 8.125 lakh + Rs 1.22 lakh = Rs 19.34 lakh
This is a return of 5.80%. The returns are not that special. Remember that this pension plan is a pure investment product. In PPF you get 7.9% p.a. gets
Note that you cannot withdraw this entire amount in one go. You will also have to buy an annuity plan with some amount.
Is State Bank Saral Pension Plan the best pension plan?
According to me you should not invest in SBI Saral Pension Plan.
We observed that the returns are around 6% p.a. Was. You will get better returns in Public Provident Fund. By the way, you can also use PPF account for pension.
Before buying any pension plan, you must pay attention to one thing.
There are two phases of a pension plan. For the first few times you deposit money and after that you withdraw money. Lump sum or in the form of annuity plan.
See, there is no need for a pension plan for regular income after retirement. How can you collect money? In Fixed Deposit, PPF or Mutual Fund. Once the money is deposited, then you can do anything. With that money, you can also buy an annuity plan for regular income.
If you must buy a pension plan, compare it with other pension products like LIC Jeevan Nidhi and National Pension Scheme (NPS). Only then decide.
