Many investors buy pension plans so that they continue to get some income even after retirement. Salary will stop after retirement. But income will start from the pension plan.
Which pension plan should you take?
There is no shortage of pension plan. National Pension Scheme (NPS) is an 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 if you should buy this pension plan.
SBI Life Saral Pension Plan (SBI Life Saral Pension Plan)
- 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, you will also pay the sum assured in case of death during the policy period. But you do not need such a rider.
- Reversionary bonus is guaranteed for the first five years. Nothing particularly useful.
You will have to pay a premium for a few years. Once the policy matures (maturity date/vesting date) you can withdraw some money one time. You have to buy an annuity plan (annuity) from the remaining plan. LIC Jeevan Shanti is an annuity plan. With an annuity plan, you will get a lifetime pension.
SBI Life Saral Pension Plan: What happens at the time of maturity (SBI Life Saral Pension Plan: Maturity)
At the time of plan maturity, you will accumulate this much amount:
Sum Assured on Vesting / Maturity + Vested Reversionary Bonus + Terminal Bonus if any
The Reversionary Bonus is announced every year. Every year this bonus is added to your policy.
Terminal bonus is also announced every year, but it applies to your policy the same year the policy matures (or the investor dies). 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 a lump sum of 1/3 rd of the deposit (accumulated fund). You will have to buy an annuity plan from the remaining amount.
Assuming the bonus is Rs 10 lakhs together, then you can withdraw a lump sum up to Rs 3.33. An annuity plan will have to be purchased for at least Rs 6.67 lakh. If you want to pay attention, you can buy annuity plans with the full amount.
Recently, IRDA has increased the amount to be withdrawn from one-third rd to 60%. It has to be seen when this applies to this policy.
# 2 You can buy a single premium deferred pension plan for the entire amount.
# 3 If you are less than 55 at the time of policy maturity, you can extend your policy term up to 70 years of age. If you do this, 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)
On investing in this SBI pension scheme, you will get a tax benefit of up to Rs 1.5 lakh under section 80CCC. Note that this tax benefit falls within the limit of 1.5 lakh of section 80C.
There is no tax on the amount you withdraw at the time of maturity. As mentioned above, you can withdraw 1/3 rd amount in one lump sum. You will not have to pay any tax on this amount.
You have to buy an annuity plan from the remaining amount. You do not have to pay any tax even on this amount. But the income generated 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 taken tax benefit under section 80CC for investing in the plan, then you have to pay tax on whatever amount you get. Read this post (English) for more information.
SBI Saral Pension Plan: How will the return be?
Let us try to estimate it with the help of examples.
A 35-year-old man buys Rs 10 lakh (Sum Assured on Vesting / Maturity). The policy term is 25 years. The premium will be Rs 33,443. The premium will be Rs 34,948 in the first year including GST and Rs 34,196 in subsequent years.
As we saw above, your deposit will depend on 3 things.
- Sum Assured on Maturity / Vesting
- Vested Reversionary Bonus (Vested Reversionary Bonus)
- Terminal Bonus (Terminal Bonus)
We know that Sum Assured on Maturity / Vesting is Rs 10 lakh. Now there is no guarantee of a bonus. But we can apply the idea by looking at the bonus of previous years. Reversionary bonuses ranged from 3.0% to 3.25%. The terminal bonus was 15%. Note that the terminal bonus is expressed as a percentage of Vested Reversionary Bonus in this scheme. Also, you do not get a terminal bonus every year. Only available in the year of maturity.
Vested Reversionary Bonus = 25 years (policy term) X 10 Lakh (Sum Assured) X 3.25% = 8.125 Lakh
Terminal bonus (15%) = 15% * 8.125 lakh rupees (Vested Reversionary Bonus) = 1.22 lakh rupees
Total Deposit Fund at the time of Maturity / Vesting = 10 Lakh + 8.125 Lakh + Rs 1.22 Lakh = Rs 19.34 Lakh
This is a return of 5.80%. Returns are not particularly special. Remember that this pension scheme is a net investment product. You get 7.9% pa in PPF.
Note that you cannot withdraw this amount in one lump sum. 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 saw that the return was around 6% pa. You will get better returns in the public provident fund. Well, you can also use pension PPF account |
One thing must be noted before buying any pension plan.
A pension plan has two stages. The first time you deposit money and after that, you withdraw money. As a one-time or annuity plan.
See, a pension plan is not required 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 want to buy a pension plan, then compare it with other pension products like LIC Jeevan Nidhi and National Pension Scheme (NPS). Only then decide.