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Living a comfortable lifestyle after retirement is everyone’s dream.
HDFC Life Pension Guaranteed Plan claims to offer a lifelong monthly income after your retirement.
But will the income be enough for you to lead a carefree retirement life?
Let’s discover here by analysing the HDFC Life Pension Guaranteed Plan.
Table of Content:
1.)What is HDFC Life Pension Guaranteed Plan?
2.)Features of HDFC Life Pension Guaranteed Plan
3.)Annuity Options of HDFC Life Pension Guaranteed Plan
4.)Benefits of HDFC Life Pension Guaranteed Plan
5.)Eligibility of HDFC Life Pension Guaranteed Plan
6.)Advantages of HDFC Life Pension Guaranteed Plan
7.)Disadvantages of HDFC Life Pension Guaranteed Plan
8.)IRR of HDFC Life Pension Guaranteed Plan
9.)How to cancel HDFC Life Pension Guaranteed Plan during the free look period?
10.)Final Verdict on HDFC Life Pension Guaranteed Plan
What is HDFC Life Pension Guaranteed Plan?
HDFC Life Pension Guaranteed Plan is a non-participating and non-linked annuity plan with a single premium option. It offers to provide an independent life after your retirement. It claims that by purchasing the single annuity plan, customers can get a regular income after their retirement.
Simply, the HDFC Life Pension Guaranteed Plan is a single premium annuity that offers a lifetime of guaranteed income.
Features of HDFC Life Pension Guaranteed Plan:
- A vast range of annuity options to fulfil your needs.
- Option to purchase the plan on an as single or joint life basis.
- Option to receive an immediate annuity or deferred annuity.
- Options to receive the annuity on a yearly, half-yearly, quarterly, and monthly basis.
- Option for purchase Price Refund upon Death.
- Options for banks/financial institutions to acquire instant annuities instead of annuity payments for their reverse mortgage commitments to homeowners.
- Option to increase your Annuity Payouts with the Top Up option.
Annuity Options of HDFC Life Pension Guaranteed Plan:
There are three annuity options available in HDFC Life Pension Guaranteed Plan.
- Immediate Life Annuity
- Immediate Life Annuity with Return of Purchase Price
- Deferred Life Annuity with Return of Purchase Price
The annuity option cannot be changed once the policyholder chooses the plan.
There is a “Single Life” and “Joint Life” option available in each annuity plan.
a.) Immediate Life Annuity:
Single Life:
- The annuity will be paid in arrears according to the payment frequency you select for as long as the annuitant is alive.
- If the annuitant dies, the annuity payments will end and no more benefits will be paid.
Joint Life:
- The annuity will be paid in arrears according to the payment frequency you select for as long as either the primary or secondary annuitant is alive.
- When both annuitants die, the annuity payments stop and no further benefits are due.
b.) Immediate Life Annuity with Return of Purchase Price:
Single Life:
- The annuity will be paid in arrears according to the payment frequency you select for as long as the annuitant lives.
- The death benefit is paid as a lump sum to the nominee at the death of the annuitant, and no additional payment is payable. The insurance will be terminated and all other benefits will end upon payment of the death benefit.
Joint Life:
- The annuity will be paid in arrears according to the payment frequency you select for as long as either the primary or secondary annuitant is alive.
- After the two annuitants’ deaths, the death benefit is paid as a lump sum amount to the nominee. The insurance will end and all other benefits will stop upon payment of the death benefit.
c.) Deferred Life Annuity with Return of Purchase Price:
Single Life:
- The annuity will be paid in arrears following the deferral period, according to the payment frequency you select, for as long as the annuitant is alive.
- When the annuitant dies, the death benefit is paid as a lump sum to the nominee, and no further payments are made. The insurance will end and all other benefits will stop upon payment of the death benefit.
Joint Life:
- The annuity will be paid in arrears following the deferral period, according to the payment frequency you select, for as long as either the primary or secondary annuitant is alive.
- After the two annuitants’ deaths, the death benefit is paid as a lump sum amount to the nominee. The insurance will end and all other benefits will stop upon payment of the death benefit.
Benefits of HDFC Life Pension Guaranteed Plan:
Annuity Payout:
A single premium is paid in advance at the beginning of a contract. Your yearly frequency annuity will be computed as follows:
Annuity Payout = Applicable Annuity Rate * Purchase Price
Here the tax is applicable to the “purchase price”.
Your annuity will be paid in arrears at the end of the specified annuity payment frequency from the day the plan was purchased. This means that
- For yearly frequency, the payout will occur after one year from the date of purchase.
- The payout will occur after 6 months from the date of purchase in the half-yearly frequency.
- If the frequency is on a quarterly basis then the payout will occur after the 3 months from the date of purchase.
- For monthly frequency, the payout will carry out after a month from the date of purchase.
Annuity instalments for frequencies other than annual shall be as specified below:
| Frequency | Annuity Instalment (per frequency) |
|
Half-yearly |
98% of Yearly Annuity x 1/2 |
| Quarterly | 97% of Yearly Annuity x 1/4 |
| Monthly | 96% of Yearly Annuity x 1/12 |
Top-up option:
- The age considered for annuity rates is the age at the time of top-up. The additional annuity amount due is determined by the top-up amount as well as the annuity rates in effect at the time of top-up.
- The age considered for annuity rates is the age at the time of top-up.
Death Benefit:
a.) Immediate Life Annuity: None.
b.) Immediate Life Annuity with Return of Purchasing Price: 100% of the Purchase Price of the annuity.
c.) Deferred Life Annuity with Return of Purchasing Price: Higher of
- Purchase Price + Guaranteed Additions (GA) – Total Annuity Pay-outs till the date of death
- 110 % of Purchase Price Where GA = Purchase Price * Annuity Rate/12 and are accrued at the end of every policy month during the deferment period.
At the end of the deferral term, GA ceases to accrue.
Surrender Benefit:
a.) Immediate Life Annuity: Surrender is not allowed.
b.) Immediate and Deferred Life Annuity with Return of Purchasing Price (Single and Joint Life Option):
Surrender Value is equal to the Present Value (PV) of predicted future benefits discounted at the then-current interest rate plus 2%.
Illustration:
| Age at entry: 45 (male) | Purchase Price: Rs 200,000 |
| Option: Deferred Life Annuity with Returns of Purchase Price(Single Life) | Annuity Rater:10.00% |
| Deferment period:10 years | Annuity Frequency: Annual |
| Surrender value (At various interest rates prevailing at the time of surrender) | |||
|
End of Policy Year |
5.5% | 6.5% | 7.5% |
|
1 |
Rs.1,50,000 |
Rs.1,50,000 | Rs.1,50,000 |
|
5 |
Rs.1,80,000 |
Rs.1,80,000 | Rs.1,80,000 |
| 10 |
Rs.2,55,512 |
Rs.2,29,688 |
Rs.2,08,474 |
| 15 | Rs.2,62,417 | Rs.2,37,939 |
Rs.2,17,461 |
Policy Loans Provision:
In HDFC Life Pension Guaranteed Plan, policy Loans will be accessible under the Deferred Life Annuity option throughout the deferral period.
The loan amount will be limited to a maximum of 80% of the surrender value.
The loan interest rate is presently 9% per annum. It is computed as the average annualised 10-year benchmark G-Sec yield (for the past 6 months and rounded up to the closest 50 basis points) + 2%.
For more details, you can read the HDFC Life Pension Guaranteed Plan Brochure here.
Eligibility of HDFC Life Pension Guaranteed Plan:
| Parameters | Minimum | Maximum | |
| Entry Age | Immediate Life Annuity | 30 years | 85 years |
| Immediate Life Annuity with Return of Purchase Price | 30 years | ||
| Deferred Life Annuity with Return of Purchase Price | 45 years | ||
| Annuity Pay-out (in Rs.) Per instalment | Annual | 12000 | No limit |
| Half-yearly | 6000 | ||
| Quarterly | 3000 | ||
| Monthly | 1000 | ||
| Immediate Life Annuity | Rs. 42,076 | No limit | |
| Minimum/ Maximum Purchase Price | Immediate Life Annuity with Return of Purchase Price | Rs. 160,261 | |
| Deferred Life Annuity with Return of Purchase Price | Rs. 76,046 | ||
| Minimum Group Size (For Group Policies) | 5 (Five) | ||
| Premium Payment Term | Single Pay | ||
Advantages of HDFC Life Pension Guaranteed Plan:
- The lack of a monthly salary after retirement is an easy way to generate consistent revenue.
- The guaranteed interest rate for life ensures the continuance of a specified and stable cash flow after retirement.
- There is a loan option available.
Disadvantages of HDFC Life Pension Guaranteed Plan:
- No maturity benefit option.
- Annuities are taxed.
- After the annuity has been started, no changes may be made.
- This plan contains no loyalty benefits.
IRR of HDFC Life Pension Guaranteed Plan:
Immediate Life Annuity with Return of Purchase Price (Joint Life):
In the Immediate Life Annuity with Return of Purchase Price option, you will get the guaranteed payout from the next policy term onwards.
For example, let’s take you have purchased the plan for Rs. 1,00,00,000.
Age of primary policy holder: 50
Age of the secondary policyholder: 45
| Purchase Price ₹1cr5 | Aunnity with Return of Purchase Price(Joint Life Feature) | ||||||
| Annuity Option | Immediate Annuity Option | Deferred Aunnity Option | |||||
| Primary Aunnitant
Age |
Secondary
Aunnitant Age |
Payable Immediately | Payable after 5years Deferment | Payable after 10years Deferment | |||
| Monthly Aunnity for Life5 | Aunnal Aunnity Amount | Monthly Aunnity for Life5 | Aunnal Aunnity Amount | Monthly Aunnity for Life5 | Aunnal Aunnity Amount | ||
| 50 | 45 | ₹44,760 | ₹5,59,505 | ₹59,951 | ₹7,49,385 | ₹80,422 | ₹1,00,5280 |
| 55 | 50 | ₹45,324 | ₹5,66,550 | ₹61,313 | ₹7,66,415 | ₹83,385 | ₹1,04,2310 |
Then, you will get the Annual Annuity Amount of Rs. 5,59,505 for the annuity period of 40 years.
| Age | Year | Purchase Price / Annuity |
| 50 | 1 | -1,00,00,000 |
| 51 | 2 | 5,95,505 |
| 52 | 3 | 5,95,505 |
| 53 | 4 | 5,95,505 |
| 54 | 5 | 5,95,505 |
| …. | ….. | ….. |
| 90 | 41 | 5,95,506 |
| Return of Purchase Price | 1,10,00,000 | |
| IRR | 5.98% |
And, at the end of the policy term, you will receive an IRR of 5.98%.
Deferred Life Annuity with Return of Purchase Price (Joint Life):
In the Deferred Life Annuity with Return of Purchase Price (Joint Life) option, the policyholder will get the annuity after the deferment period.
| 57 | 7 | 0 |
| 58 | 8 | 0 |
| 59 | 9 | 0 |
| 60 | 10 | 0 |
| 61 | 11 | 10,05,280 |
| 62 | 12 | 10,05,280 |
| …. | …. | ….. |
| 90 | 40 | 10,05,280 |
| Return of Purchase Price | 1,10,00,000 | |
| IRR | 5.64% |
In the Deferred Life Annuity with Return of Purchase Price (Joint Life) option, the policyholder will get the annuity after the deferment period.
Here, if we take the same example to calculate the IRR, then at the end of the policy term, you will get the Annual Annuity Amount of Rs. 10,05,280 after the deferment period of 10 years.
And, at the end of the policy term, you will receive an IRR of 5.64%.
HDFC Life Pension Guaranteed Plan vs Other Investments:
Now, it may look like HDFC Life Pension Guaranteed Plan gives you a better return. But, in reality, it gives us a return of a Bank FD. Also, it can only give you lesser purchasing power after your retirement. It cannot help you to beat inflation.
Then what to do?
Here, we have some alternative investment options that can give you an inflation-beating return.
HDFC Life Pension Guaranteed Plan Vs RBI Bonds
Instead of purchasing Immediate Life Annuity with the Return of Purchase Price option, you can invest your money in RBI Bonds.
Because RBI Bonds give you a return of 7.15% per annum. So, if you invest Rs. 1,00,00,000, you will get an annual interest of Rs. 7,15,000 which is higher than the Immediate Life Annuity with Return of Purchase Price option.
HDFC Life Pension Guaranteed Plan Vs Hybrid Mutual Funds
As for the Deferred Life Annuity with Return of Purchase Price option you can choose mutual fund investments such as Hybrid Fund to get a better investment return.
| Age | Year | Hybrid Fund |
|---|---|---|
| 51 | 1 | -1,00,00,000 |
| 52 | 2 | 0 |
| 53 | 3 | 0 |
| 54 | 4 | 0 |
| 55 | 5 | 0 |
| 56 | 6 | 0 |
| 57 | 7 | 0 |
| 58 | 8 | 0 |
| 59 | 9 | 0 |
| 60 | 10 | 0 |
| 61 | 11 | 10,05,280 |
| 62 | 12 | 10,05,280 |
| …. | …. | ….. |
| 90 | 40 | 10,05,280 |
| Return | 9,42,53,361 | |
| IRR | 8.00% |
As you can see in the above illustration, if you invest Rs. 1,00,00,000, after 10 years, you can get an investment return of Rs. 10,05,280 p.a and you will get an IRR of 8% at the end of the maturity.
Key Insights from the Analysis:
RBI Bonds and Hybrid mutual fund schemes are able to out beat the returns from the HDFC Life Guaranteed Pension Plan substantially.
How to cancel HDFC Life Pension Guaranteed Plan during the free look period?
Single Life:
If the policyholder is not satisfied with the terms and conditions of the policy, then he/she can return the policy by stating the reason for cancelling the policy within 15 days from the days of purchasing the policy.
If the policyholder purchases the policy in distance mode, the free look period will be 30 days.
However, the insurance company will refund the premium after deducting the medical examination charges and stamp duty charges if any.
Joint Life:
If the primary policy holder or the secondary policyholder is not satisfied with the terms and conditions of the policy, then they can return the Policy/Certificate of Insurance to the company to surrender the policy within 15 days from the date of purchasing the policy.
The free look period will be extended to 30 days if the policyholder purchases the policy through distance mode.
The company will refund the premium after deducting the medical examination charges and stamp duty charges if any.
Final Verdict on HDFC Life Pension Guaranteed Plan:
HDFC Life Pension Guaranteed Plan promises a guaranteed payout after your retirement.
But, the income is not guaranteed to fulfill your needs.
Compared to other investments, it does not give you an inflation-beating return. It only gives you a return that you can get from Bank FDs.
So, it is better to plan your retirement with a suitable investment plan that can give you better purchasing power and can help you to reach your financial freedom after your retirement.
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