Its the time of the year when all us poor souls that earn taxable salaries have to submit the list of tax saving instruments that we have taken for this financial year so that we end up saving some tax!
Well, I am not getting into Section 88 savings now (would write the review for that if someone actually wants; do let me know) and would focus on pension plans that come under 80ccc (sounds better when u say, 80 triple C!). I just underwent the experience of having to choose one and I hope it might be useful for you guys.
I trawled the web for info. Basically the ’’experts’’ say that one should try and choose a plain vanilla pension scheme. Means try and get one without accident benefit, critical illness rider etc. Why? Because the idea of pension scheme is mainly to save tax and also generate some returns and you aren’t going to enjoy it if you die in an accident! If you want to cover your life for your family, take a term insurance. Its cheaper and you get way more coverage. Also critical illness etc can be claimed / clubbed with your mediclaim and you can get more tax benefit that way.
Also the max rebate you get from tax is upto Rs.10000 under 80ccc. So investing anything more wouldn’t do you any good as you will be taxed for the extra amount you invested now and also when you get the returns after 20 or 25 years, its taxed again. So, I would say stick to Rs.10000 for now.
I checked out funds from ICIC and Tata. ICICI has about 5 different funds and has also unit linked ones with and without life cover. On the whole, they have a wider basket on pension plans to offer. But as most are unit linked, people tend to get cold feet, as they don’t want their retirement money exposed to stock markets. ICICI also has the option of taking a scheme with exposure to debt market and also a balanced fund. A real plus for ICICI is their sales team, which is pretty quick to respond to your queries. However, for ICICI policies, one has to really spend time and take that policy which suits one best as they have a wider choice available which is really nice. So there is no easy way about it. One will have to call the advisor and sit down to figure what suits you. You would do well by going with ICICI.
Tata AIG has a plan called Nirvana and another called Nirvana Plus. Now while Nirvana is sold through the agency set up, Nirvana plus is sold through direct marketing by the company. It is an amazingly stupid setup as I found out because when you contact them, they send a person over who will only talk of Nirvana as he isn’t allowed to sell plus and vice versa. While the company claims to have better benefits on Plus (Like accident benefit, critical illness rider etc) and that too free, a closer look shows that the amount of coverage given to you is lesser in Plus than in Nirvana. Nirvana Plus is more of a marketing gimmick by the company. For example the critical illness rider is for the first 3 years. Say you are 30, the chance of you getting a heart attack is miniscule. Also the policy wouldn’t pay if you get one within 6 months! And if you want to continue the cover after 3 years, you pay extra!! Between Nirvana Plus and Nirvana, its might be better for you to go in for plain Nirvana.
The most important thing about buying a pension plan is as follows
Ignore the marketing rhetoric. Each guy will claim his is the best product. What you will find at the end of the day in that they are all 90% same and only a very few (like ICICI which gives unit lined plan without life cover and the option of you choosing where you want your fund invested) are really different. The reason – they all operate under strict IRDA rules
The “complex” calculation they will show you is only notional one. The calculations can show a max of 10% return. Reality is however different. The returns will be in the 3% to 4.5% scenario unless you have equity exposure. So don’t get fooled when one plan shows huge terminal values as that is only for show.
It makes sense not to depend only on the pension plan to provide for your retirement. From the sum you get at the end of 20 or 25 years, you can take a one-time lump sum of between 25% to 33% as per IRDA rules. The rest has to be invested in an annuity, which is like a fixed deposit. From this you get a monthly pension, which when you calculate is going to be a very small sum in the year 2020 or 2030.
Hope I have helped somewhat. If there is anything you need, just put in a comment for this article and I will try and answer as best I can. And remember, there is nothing better that a habit of regular saving for retirement but you should invest that money as otherwise you will spend it away on unplanned expenses. Bye.