pension plans

When to Start with a Pension Plan?

by Vinaya HS on February 16, 2015

in Finance

The following post is a sponsored post.

Planning your future is extremely essential to lead a successful life. The rate of every commodity is rising with the changing times. You do not know what the rates would be after certain years! For now, you have a stable job to survive the ever increasing inflation. But, how will you manage your finances after you retire?

This is a big question that everyone should ponder upon. The answer to this certainly lies in having a good pension plan. But, when should you start thinking about the plan? When is the right age to invest in a pension plan?

The answer is, now. Start your pension plan immediately on getting your first job. The younger generation fails to understand this. They think, they have many years left for retirement and pension plan is something that they should think about at a later stage. But the fact is the early you start, more benefits you get.

Starting early means you will be invested for a long time. Long term investments always fetch better results as your money gets a longer period to grow. Pension plans being a long term plans, will also give you better outcomes if you start early.

When you start early, you can accumulate a lot of corpus to bear all the expenses of your retirement life. Besides, you can manage to collect a large amount with little savings. This also helps to inculcate the habit of saving from a young age. On the contrary, when you start your pension plan late, you need to increase your savings considerably and your returns are also comparatively low.

If you haven’t invested in a pension plan yet, then start with one immediately. People belonging to different age groups should see different aspects when looking for a pension plan. Some of the things you should see, before selecting the plan are:

  • When you are in Mid 30s: At this age, you should take an estimate of how much money you will require, after you retire. You should also check whether the scheme is sufficient or you need to save more to cope with the inflation? Accordingly, choose the best pension plan. You may invest more, if required.
  • When you are in Mid 40s: In your 40s, you become mature enough to understand the realities. At this age, you have a clear picture of where you will settle, when you will retire and how much fund you will require to fulfill your desires in the post-retirement life. These things will help you to know how much to invest in which scheme.
  • When you are in Mid 50s: This stage leads you closer to the retirement age. It is high time when you get serious about your retirement life. Go through various pension plans in India and pick the right one. You should pick that plan which will take care of your health and medical expenses along with funding your dreams.

It is certain that early planning makes your life after retirement, financially comfortable and secure. So start planning now and choose the best pension plan in India for yourself.

About HDFC Life

HDFC Life, one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.


Asked and Answered: February, 2011

by Vinaya HS on February 25, 2011

in Finance

Here’s what was asked and answered by Capital Advisor in February, 2011. If you have a question on managing your personal finances, send me an email and I’ll respond at the earliest. If your question’s beneficial to a wider audience, I’ll publish it in a future edition of “Asked and Answered,” without revealing your personal details.

Query #1: On continuing a guaranteed-return life insurance policy.

I have a question regarding my TATA AIG Maha Life Gold life insurance policy. For a sum assured of Rs 400,000, I am paying Rs 35,000 as annual premium for 10 years. After the 6th year, which is this year, the policy gives me a small cash dividend of around 2%. After the 10th year, a guaranteed annual coupon of 5% that is Rs 20,000 would be paid to me. I am not sure if its good to discontinue this policy at this point of time. Please suggest.

I ran the numbers on this situation — you can download my analysis here — and the results were quite shocking. (Note: The sheet doesn’t consider the paltry cash dividend. Even if it did, the results would still be shocking.) And as I told the reader, “if you play around with the Excel sheet, you’ll find that all TATA AIG needs to do is park your money in a FD and they’d still make money off you! But since you’re already in the 6th year (and I don’t find a surrender option), I guess you have no choice but to continue this policy.”

I then ran the numbers on a similar policy from Bharti AXA called Bharti AXA Aajeevan Anand — you can download my analysis here — and the results were equally shocking.

I’d stay away from such policies. In my opinion, the minimum guaranteed coupon should be equal to the current risk-free rate of return, but then that wouldn’t make business sense to the life insurance company, would it?

Just put those premiums in a Fixed Deposit and you’d do far far better.

Query #2: On the New Pension Scheme.

Could you review the New Pension Scheme (NPS)? I want to invest in a Pension Plan without being taken for a ride.

In my opinion, most Pension Plans, these days, take you for a ride — so much so that sometimes I wonder who the pension is for: you or the insurance company.

While I have a general sense of the NPS, I’m not intimately familiar with its structure and working. Therefore, I pointed the reader to a recent article on NPS in ET Wealth for further information.

Personally, though, when it comes to financial instruments, the NPS isn’t on my radar.

Query #3: On infrastructure bonds.

Have you analyzed the Infrastructure Bonds from IDFC and L&T?

I haven’t. But reader Nikhil Shah was kind enough to share his detailed analysis of these infrastructure bonds some time back.

(Note: Follow me on Twitter, and you’ll have advance access to these downloads.)

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I first read about this pension plan in the ET dated June 22, 2010. I was intrigued. Basically, Reliance Life Traditional Golden Years Plan is a regular premium retirement plan that provides guaranteed return, which is declared at the beginning of every financial year during the product term. So far so good. But,

The minimum guaranteed accumulation rate [in other words, the return] will not be less than the savings bank deposit interest rate, as declared by the Reserve Bank of India.

WTF, mate? What kind of guarantee is this?

Next, I ran the numbers through this calculator — assumptions were 35 years policy/premium paying term and a monthly premium of Rs 6,000. Over a period of 35 years, you pay a whopping 6% of your total premium as Premium Allocation Fees and Policy Administration Fees. To further add insult to your injury, you also pay around 1.2% of the accumulated value at the end of each year as Account Administration Fees.

A guaranteed tension plan in my opinion.

My advise:

Over a period of 35 years, you’d do FAR FAR FAR BETTER simply by saving the same Rs 6,000 each month in a Public Provident Fund account.

What do you think?

{ 1 comment }

Tweets on 2010-05-26

by Vinaya HS on May 26, 2010

in Finance

Mithun asks,

I read your research on pension plans. But what exactly do you mean by “Save each month. Compound your savings in debt instruments…???”

Simple. Rather than paying an obscene premium for 30 years and making the life insurance company obscenely profitable while you receive a paltry pension, you can build a very decent corpus for yourself (and retire off the interest generated) by opening a Public Provident Fund account and saving the maximum possible each year (currently Rs 70,000) for 30 years.

What do you think?


Tweets on 2010-05-19

by Vinaya HS on May 19, 2010

in Finance

  • Pension Plans or Pension Scams? That's what my research on retirement plans offered by life insurance companies in India indicates. #
  • Pension Plan Mathematics of Life Insurance Companies in India. God can't interpret it. I bet. #
  • Save each month. Compound your savings in debt instruments. You'll do FAR FAR FAR better than any Pension Plan. #
  • Reliance Total Investment Series II Term 10 Plan – Pension. How do you credibly say this to someone who asks about your retirement planning? #