Unit Linked Pension Plans

A well-planned retirement can ensure that an individual accomplishes all their life goals. Among the range of options, Unit Linked Pension Plans (ULPPs) are most popular with people who make deliberate decisions about investing their hard-earned money. ULPPs enable them to reap substantial benefits after retirement while also saving taxes.

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What are Unit Linked Pension Plans (ULPPs)?

Unit Linked Pension Plans (ULPPs) are long-term, market-linked products that cater to both the pension and investment needs of an investor. This plan offers a host of opportunities for them to grow their financial corpus safely and plan securely for various goals like child education, health benefits, retirement, and wealth creation.

These post-retirement ULIP pension plans leverage the risk appetite of an individual to give them the liberty to invest 100% in equities, debt funds, or a combination of the two based on their risk profile.

ULPPs allows the policyholder to allocate, control, and choose how to invest their money. Among these, one of the most attractive features is the flexibility offered to investors for switching and tweaking their debt and equity fund profiles. The other is the unit linked pension plan taxability feature, where the subscriber is offered tax exemption under Section 80C of the IT Act, 1961. 

Having said that, a ULIP for senior citizens is certainly the best way to gain exciting returns toward fulfilling their future goals.

Features of Unit Linked Pension Plans (ULPPs)

Below is the listed array of features significant in well-informed decision-making for subscribing to ULPPs, one of the best retirement annuity-cum-investment plans:

  • Being a unit-linked plan, the Unit Linked Pension Plans come with a lock-in period of 5 years.

  • Individuals between the ages of 35 and 70 are eligible to invest in the plan.

  • The policy term tenure ranges between 5 and 30 years in multiples of 5 (5, 10, 15 years, and so on).

  • The premium allocation is low if bought in the initial years of eligibility for the plan but increases gradually with the increase in the subscriber's age.

  • The investors can withdraw 1/3rd of the corpus sum tax-free when they retire.

  • They must subscribe to an annuity plan with the rest of the accumulated money, which will be taxable and a regular source of income.

  • According to market trends, guaranteed maturity benefits range from 101% to 195% in the Unit Linked Pension Plans.

  • In the event of the premature death of the investor, a guaranteed death benefit will apply to the nominee.

  • It discourages premature exit to reap the full benefits of this long-term investment product.

  • ULIP for senior citizens is specifically designed to effectively plan all their post-retirement events and goals.

How do Unit Linked Pension Plans (ULPPs) Work?

When buying the ULIP pension plan, the investor chooses the premium payment term of the policy based on their risk appetite. The reason is equities, being a more volatile asset as compared to debt investments, present high money-generation opportunities in the long term.

In these plans, a portion of the premium is invested in stocks, bonds, and other financial instruments to make your money grow parallel to market growth. The rest of the portion is invested in pension premiums for your future stability post-retirement. An investor can also pay extra premiums (top-up amounts) on top of the fixed premium amount.

After deducting the policy charges and the successful payment of the premiums, the policy matures on the vesting date. On this date, the investor gets the total fund value from both the premiums and top-up premiums paid

A few of the major ULPP policies available in the market that an investor can consider are: HDFC Unit Linked Pension Plans, ICICI Unit Linked Pension Plans, Birla Sun life ULPPs, and Bajaj Allianz Unit Linked Pension Plans.

 For example, with HDFC Unit Linked Pension Plans, you can accumulate a huge corpus efficiently with 15 or more years of subscription.

Charges under Unit Linked Pension Plans (ULPPs)

There is also a deduction of charges in the ULPP plans, the major among them being:

  • Fund management expenses

  • Discontinuation charges

  • Mortality charges

  • Surrender charges (in case of partial and premature withdrawal of units)

  • Premium allocation charges

  • Policy administrative charges

  • Fund switching charges

  • The company also charges a fee in case the investor seeks guaranteed returns.

Benefits of Unit Linked Pension Plans

The range of benefits offered by a ULPP plan are listed below but are not limited to them, are as follows: 

  • Tax-exemption: The unit linked pension plan taxability is the feature that excites the investors the most. Under Section 80C of the IT Act, 1961, premiums up to the limit of Rs. 1.5 lakh annually are eligible for tax exemption.

  • Flexibility to change the premium amount: The premium amount can be deposited as a lump sum, at regular intervals, or in top-up amounts additional to the existing premium.

  • Flexibility to extend the vesting age: The maturity age (the age when you start receiving your pension) can be decided by the investor anywhere between 50 and 75 years.

  • Consistency of post-retirement income: ULPPs generate a robust retirement financial corpus even if your income is inconsistent. 

On a Final Note!

Although financial stability and security are urgent needs, a future plan based on a comprehensive understanding of investment policies cannot be overstated. Making sure to inquire about the past performance of the funds, market trends, future prospects, and returns is crucial prior to taking out ULPP plans.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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