LIC Pension Plans

The Life Insurance Corporation of India, LICI, is the oldest and the most trusted Life Insurer in the insurance sector. Through the Life Insurance Corporation Act passed by the Parliament of India on 1st September 1956, LICI was incorporated and was enjoying monopoly power in the life insurance industry due to absence of other players. In January 2002, the Government of India relaxed the regulations governing the insurance sector and allowed private players to enter the insurance market. Today there are about 28 players in the market but LICI still enjoys the majority of the market share through decades of service in the insurance industry. Today, the company has a vast customer base of more than 250 million people and is striving to maintain the same service and product pricing in the ever competitive insurance market.

What are Pension Plans?

The specialized insurance plans which provide a steady flow of income in your golden years post retirement are called pension plans. These plans are so designed that instead of providing a lump sum amount on maturity, as most insurance plans do, this plan provides a stream of payments post maturity up until the policyholder is alive. Perhaps this is why these plans are called a reverse of life insurance plans where a lump sum amount is provided on maturity. These plans come is two separate versions. One version is called an Immediate Annuity plan. This is suitable for older people who have a lump sum amount. They can pay the lump sum amount in a single pay option and purchase these plans. The annuity rate will be fixed or increasing, as the case may be and known to the annuitant. The company will start making annuity payouts from the single premium up until the policyholder who has made the payment is alive. On his death, the annuity payments will stop. The policyholder can also buy the joint life version of the Immediate Annuity plan. In this version, the annuity will first be payable to the policyholder and when he dies the annuity will continue to be paid to his spouse and will stop only after the spouse also dies. In some cases, the company might also return the single premium which was paid to secure the pension after the death of the annuitant and in case of a joint life annuity, on death of the spouse. The other version of a pension plan is the Deferred Annuity option where the annuity payments will begin only after the deferment period. Here, either the policyholder can make a lump sum payment and then wait for the annuity to begin or use the deferment period to make premium payments which will be accumulated in a corpus. The latter is usually preferred by investors since they can make instalment payments to slowly build a corpus while waiting for their pensions to commence. Annuity plans also have different rules of taxation from other insurance plans because the annuity one receives is subject to the provisions of taxation as it is treated as an income and is thus not tax-free

Why Pension Plans?

Pension plans are your answer if you want to build a secure fund for retirement. Since these plans provide payments in instalments and not in one lump sum, it is ensured that the money received will actually be used for retirement funding and not on other expenses. You can choose the vesting date, which is the date from which you become eligible to receive pension, to coincide with the age from which you would supposedly retire. This would entail that the pension payments will start immediately after your income stops so that you do not feel the absence of a source of income even after you retire from work. These plans, thus, make you financially independent.

LIC Pension Plans

The Life Insurance Corporation of India has numerous pension plans in its kitty for its customers. The company had around 16.35 lakh individual LIC pension plans at the end of financial year 204-15 with a sum assured of Rs. 1,928.14 crore and annual premium receivable of Rs. 905.64 crore. It added 24,608 new LIC pension plans in the said fiscal with a sum assured of Rs. 1051.04 crore and annual premium receivable of Rs. 58.97 crore.

The company launches new LIC pension plans every now and then and currently has two main plans that it offers its customers. The plans are enumerated below for a better clarity:

LIC Pension Plan – Jeevan Akshay VI

An immediate annuity LIC pension plan which provides the following benefits:

• The LIC pension plan is an Immediate Annuity plan where pension will be paid immediately following the payment of the Single Premium
• The annuity can be chosen to be payable to a single life, that of the annuitant himself or to a joint life which is the annuitant and his spouse until the last one dies.
• There are multiple options of annuity payouts available under this LIC pension plan which are:
  • Life Annuity paid at a uniform rate
  • Lifetime Annuity with Return of Purchase Price
  • Life Annuity guaranteed for 5/10/15 or 20 years and thereafter payable for life
  • Life Annuity increasing at a simple rate of 3% p.a.
  • Annuity for life with 50% annuity to spouse after the annuitant’s death
  • Annuity for life with 100% annuity to spouse after the annuitant’s death
  • Annuity for life with 100% annuity for spouse after the annuitant’s death and also Return of Purchase Price after death of the last survivor
  • The LIC pension plan can be bought without undergoing any medical tests
  • A higher annuity is payable for higher Purchase Price amounts of Rs.2.5 lakhs and above
  • Annuity payouts are also higher if the LIC pension plan is bought online through the website of the company
  • The premium paid to avail of the annuity is exempt from tax under Section 80CCC

LIC Pension Plan – Jeevan Akshay VI: Eligibility Details

LIC Pension Plan – Jeevan Akshay VI: Sample Annuity Payout Rates

The table shows the different rates of annuity payouts to individuals with different ages if the Purchase Price is assumed to be Rs.1 lakh. The annuity options are also mentioned which are numbered 1-7 as mentioned in the product features earlier.

LIC Pension Plan – New Jeevan Nidhi Plan

The LIC pension plan is a traditional deferred annuity plan providing savings for retirement. The features of the plan are as follows:

• Profit participation is promised under the plan through bonuses
• Guaranteed Additions are added in the first five years of this LIC pension plan @5% of Sum Assured for every completed year of the policy
• Thereafter, Simple Reversionary Bonuses and Final Additional Bonus are paid from the 6th policy year depending on the profit experience of the company
• On Vesting, the Sum Assured which also includes the Guaranteed Additions, Simple Reversionary Bonuses and any Final Additional Bonus is paid
• The policyholder can choose to buy an immediate annuity from the company from the proceeds available at Vesting or buy a Single Premium Deferred Annuity Plan from the company on vesting in this LIC pension plan.
• If the policyholder of this LIC pension plan dies during the first 5 plan years, the chosen Sum Assured with the accumulated Guaranteed Additions till death are payable to the nominee who can avail the death benefit whether in lump sum or annuity or partly in lump sum and partly in annuity depending on his choice
• In case of death post the first 5 years, the chosen Sum Assured under the LIC pension plan including the accumulated Guaranteed Additions, Simple Reversionary Bonuses and Final Additional Bonus, if any till the date of death is payable to the nominee who can avail the death benefit whether in lump sum or annuity or partly in lump sum and partly in annuity depending on his choice
• The death benefit payable to the nominee will be a minimum of 105% of all premiums paid till the date of death
• The LIC pension plan can be made more comprehensive by availing LIC’s Accidental Death and Disability Benefit Rider
• Rebates are given in the premium rates if the policyholder chooses high Sum Assured levels of Rs.3 lakhs and above.
• The premium paid to avail of the annuity is exempt from tax under Section 80CCC of the Income Tax Act. Death benefit paid under the LIC pension plan is also exempt from taxation under Section 10(10D).

LIC Pension Plan – New Jeevan Nidhi: Eligibility Details

LIC Pension Plan – New Jeevan Nidhi: Sample Rates of Premium

The following table shows the applicable rates of premium payable by a male at different ages if the Sum Assured is chosen to be Rs.1 lakhs. The premium paying modes are different and so is the tenure of the plan.

Applying for an LIC Pension Plan from the Company:

Online

The company offers specific LIC pension plans which are available online only. The customer only needs to log into the company’s website, choose the required LIC pension plan, choose the coverage and provide the details. The premium will be determined using the filled details. The customer then needs to pay the premium online through credit card, debit card or net banking facilities and the policy will be issued

Intermediaries

LIC pension plans which are not available online can be purchased from agents, brokers, banks, etc. where the intermediaries help with the application process.

Advantages of LIC Pension Plans

LIC pension plans offer numerous advantages to the insured policyholders. These include apparent ones such as having a regular income to some non-apparent benefits such as not having to worry about healthcare costs or travel expenses. Let us look at them in more detail:

• Regular income: The primary advantage of LIC pension plans is that the insured and his family receive a regular income after the LIC pension plan term. Most of the LIC pension plans provide for the premium payment well into the person’s lifespan. While it may seem difficult for people who are more concerned with the now and present to think of the future as a reality, it is an undeniable fact that will come to pass. And the only way to live the lifestyle you prefer is to invest in an LIC pension plan now when you have the advantage of time in your hand to grow your pension income to levels that will help you live in comfort.
• Hassle-free income: You do not have to run from pillar to post to get your pension from the LIC pension plan. Whatever product you choose, whether it is Jeevan Akshay VI or New Jeevan Nidhi Plan, the money will be deposited in the bank account you specify like clockwork. Unless pension schemes where you have to complete a lot of paperwork just to get them to release to you your own money, these are not worries you will have in an LIC pension plan. Most of the minimal paperwork would have been done at the time of buying the policy, and you will have LIC’s employees do most of the paperwork for you at the end of the LIC pension plan term when you start getting your pension. All you have to do is provide details of any change in address or bank account and give your acquiescence to the modalities of how and where you will receive your pension under the LIC pension plan.
• Good alternative for people in private jobs: LIC pension plans are a good way to earn pension for people employed in the private sector. Unlike the public sector, where the central or state allocates a certain percentage of the salary towards pension, there is no such benefit in the private sector. Also, with people changing jobs and locations ever so often, it makes sense to rely on an entity that is certain to pay the pension on time. This is where LIC pension plans have an upper hand.
• Receive much more than amount put in, besides the insurance: The guaranteed additions such as reversionary bonus and final bonus add to the overall payout at the end of the plan. Also, all details of reversionary bonus percentages are declared to the public each year, so the LIC pension plan policyholders know how much bonus they will be receiving through simple additions. This helps to receive much better returns. Moreover, LIC provides an additional bonus amount as loyalty payment to the customer for staying with them for the whole term of the LIC pension plan.
• Guaranteed payouts: Unlike ULIPs where the amount of payout is not certain, the payment under LIC pension plans are guaranteed. The person will not only receive the payout promised, they will also be able to plan their future finances well in advance. Knowing that the amount they will receive helps the person insured under the LIC pension plan to chalk out how much additional money they need to invest to receive a good pension amount.
• Payment for life: The LIC pension plans offer payment for life. The Jeevan Akshay VI immediate annuity plan, for instance, comes with a range of options such as life annuity that is paid at a uniform rate, lifetime annuity with return of purchase price, life annuity increasing at a simple rate of 3% p.a., etc. Policyholders taking the New Jeevan Nidhi Plan can opt to buy an immediate annuity from the proceeds available at maturity or a single premium deferred annuity plan, depending on their needs.

Things to Keep In Mind When Purchasing a Pension Plan

This section will talk about a few things that you need to keep in mind to ensure the LIC pension plan you buy is adequate and helps you meet your financial goals.

• Know Your Pension Needs: You need to make a good estimate of how much money you need in the future after you retire. Consider the fact that the real value of money decreases with time and you need to build a sizeable corpus so you can lead the lifestyle with which you are comfortable. The corpus you need will depend on your current expenses less any expenses such as loans that you would have paid off by the time you retire and plus any increase in healthcare and other expenses for you to take care of your health and additional costs that are likely to arise after retirement.
• Buy a Plan Early: The advice that all financial experts give on the power of compounding cannot be stressed enough. Starting early with an LIC pension plan will ensure you easily build up a sizeable corpus for your retirement. Starting as early as your 20s will mean that you will have to invest less as the small amounts you have invested will have grown to a large sum by the time you reach your retirement age. Alternatively, if you start investing in your 40s or 50s, you will have to pay considerably higher amounts to reach the same amount of corpus.
• Buy a Deferred or Immediate Annuity Plan After LIC Pension Plan Matures: Most people don’t realise it but human beings are by nature unable to comprehend and make proper use of large sums of money. You would have heard of stories of people fritter away large sums of money simply because they were not able to handle the amounts and neither realise the implications of their action. The way to avoid this for your retirement corpus is by immediately investing any lump sum amount you receive at the time of vesting in an immediate or deferred annuity plan. This will ensure your retirement corpus remains safe and you are left not in a lurch when you retire. LIC's New Jeevan Nidhi plan provides this option.
• Know the Types of Pension Plans: There are different forms of pension plans. The first option is plans like the EPF, PPF and NPS where you deposit a sum of money every year and receive a pension income after you retire on reaching a certain age. The second option is pension plans from asset management companies that invest in the stock market. The third option is insurance cum savings plans that build up a retirement corpus for you and at the same time, make sure you are protected against risks. Each option has its pros and cons and you should go with the one(s) that make sense for you. Many people prefer LIC pension plans because they offer a two-way benefit – insurance cover and assured returns.
• The Type of Payouts is Important: There are different types of payouts that pension plans have. Some would give you a lump sum amount of the total amount on vesting, while others would pay you an annuity for life. The ones you ought to choose should be based on the total amount you get back, the overall return percentage, and the convenience factor. For instance, the New Jeevan Nidhi LIC pension plan gives you a single corpus on vesting that you can use to purchase an immediate annuity or buy a single premium deferred pension plan for yourself. Such LIC pension plans are better as otherwise, most people are unable to choose a good annuity option for themselves and waste the money they have received as a lump sum.
• Know the Charges and Fees: Knowing the charges and fees will help you identify the plans that provide better returns. Not many people realise the amount of money that is wasted away through hidden charges and fees. Factoring them in will provide a more clear picture on the real returns.

You may also like to read : Best 5 LIC Policies To Invest in 2016

LIC Pension Plans FAQS

1. What is pension plan?

Pension plan offers the dual benefits of insurance and investment. In this plan, the policyholder regularly pays premium to the insurance company to build up corpus over the time. On maturity, this corpus is repaid to the policyholder in the form of regular income. However, in case the insured dies within the policy tenure, the nominee will be entitled to get the sum assured along with bonus.

2. Why should I buy LIC’s pension plans?

Given the rising living costs, retirement planning becomes an important part of the financial life. LIC’s pension plans offer dual benefits of insurance and investment so that you continue enjoying your life post retirement.

3. What is the accumulation phase?

Accumulation phase is the time during which you can regularly pay premiums of your LIC to get income post retirement in the form of pension.

4. What are the charges to be paid for paying LIC premiums through net-banking/phone-banking?

LIC doesn’t charge anything and this is free for its policyholders.

5. How is LIC’s pension plan different from term insurance plans?

Although both pension plan and term insurance offer financial protection, there is a basic difference between both of them. A pension plan gives financial security to the policyholder after retirement. In case of a sudden demise of the insured, the nominee will be entitled to get benefits. However, a term insurance pays only after the policyholder’s death. In case the insured survives the tenure, nothing is paid.

6. What is an annuity?

An annuity is the regular income, pension or allowance that LIC pays to the policyholder after retirement.

7. What happens if I fail to pay the premium of LIC pension plan on time?

Usually you get a grace period of 15-30 days during which you can pay your premiums once it is overdue. However, if you do not pay premium within this duration and as long as your policy has cash value, LIC will automatically pay your overdue premium by taking a loan against the policy.

8. What are the different options to pay premium of my LIC pension plan?

You can pay premiums monthly, quarterly, half yearly or yearly. Also it is possible to pay in one lump sum. However, most of the people choose monthly premium mode as it is relatively easy to monitor.

9. Why should I buy LIC’s pension plan when I already have a provident fund (PF) account?

Yes you should buy LIC’s pension plan even though you have a provident fund account. The rising inflation will make your PF amount relatively insufficient. As you grow old, you become more vulnerable to different ailments and it means an increase in your medical expenses. It is not a great idea to rely only on provident fund account to meet your rising lifestyle needs.

10. How should I calculate my retirement corpus before buying LIC’s pension plans?

To calculate the retirement corpus, use our retirement calculator. To get the results, you need to put the following details in the calculator:-

• Monthly expenditure
• Inflation rate
• Retirement age
• Number of years you are expecting to live post retirement