Pension Plan or Annuity plan provides you with guaranteed income for life in exchange for a one-time lump sum premium payment. The annuity income from the plan is fixed at the time of the purchase of the plan. The assured income provides a sense of security. But, don’t you think that it is necessary to approach these kinds of investments beyond the sense of security?

Let us answer this question by analyzing a Pension plan from ICICI Prudential. In this article, let us review the ICICI Pru Saral Pension Plan and find out the advantages and disadvantages of this plan. This will help you decide whether the ICICI Pru Saral Pension is a good or bad option for your retirement life.

Let’s get started!

Table of Contents

1.) What is the ICICI Pru Saral Pension Plan?
2.) What are the Features of the ICICI Pru Saral Pension Plan?
3.) Annuity Options of ICICI Pru Saral Pension Plan
4.) Eligibility Criteria of ICICI Pru Saral Pension Plan With illustration
5.) Free Look Period of ICICI Pru Saral Pension
6.) How to Surrender ICICI Pru Saral Pension Plan?
7.) What are the Advantages of ICICI Pru Saral Pension Plan?
8.) What are the Disadvantages of the ICICI Pru Saral Pension Plan?
9.) Research Methodology of ICICI Pru Saral Pension Plan

• Benefit illustration – IRR(Internal Rate of Return i.e. Interest rate) Analysis of ICICI Pru Saral Pension Plan

10.) ICICI Pru Saral Pension Plan – What are the Alternate investment options?
11.) Final Verdict on ICICI Pru Saral Pension Plan – Good or Bad Investment Option?

1.) What is the ICICI Pru Saral Pension Plan?

ICICI Pru Saral Pension Plan is a Non-linked, Non-participating Single Premium Individual Immediate Annuity Plan. An annuity is guaranteed and you receive it for your whole life. This plan promises to provide a consistent source of income.

To get to know more about the Advantages and Disadvantages of the plan, please refer to the official brochure of ICICI Pru Saral Pension.

2.) What are the Features of the ICICI Pru Saral Pension Plan?

• Pay once (Purchase Price) and get guaranteed regular income for your entire life (Annuity).
• Flexibility to receive annuity monthly, quarterly, half-yearly, or yearly.
• Option to take the plan for single life or joint lives.
• On death, the Purchase Price is returned.
• A high Purchase Price Benefit gives you an additional annuity as per the purchase price slab.

3.) Annuity Options of ICICI Pru Saral Pension Plan

Life Annuity with a Return of 100% of Purchase Price (ROP)

This option in ICICI Pru Saral Pension Plan pays the Annuity for the life of the annuitant. On the death of the Annuitant, the Purchase Price is paid out to the nominee and thereafter the ICICI Pru Saral Pension policy shall terminate and no further benefits would be payable.

Joint life Last Survivor Annuity with a Return of 100% of Purchase Price (ROP) on the death of the last survivor

This option in ICICI Pru Saral Pension pays an Annuity for life as long as either of the Annuitants is alive. On the death of both the Annuitants, the Purchase Price is paid out to the nominee and thereafter the ICICI Pru Saral Pension policy shall terminate and no further benefits would be payable.

4.) Eligibility Criteria of ICICI Pru Saral Pension Plan With illustration

Annuity Options	Minimum Age at Entry	Maximum Age at Entry
Life Annuity with a Return of 100% of Purchase Price (ROP)	40	40
Joint life Last Survivor Annuity with a Return of 100% of Purchase Price (ROP) on the death of the last survivor	80	80

5.) Free Look Period of ICICI Pru Saral Pension Plan

If you are not satisfied with the terms and conditions of this ICICI Pru Saral Pension Policy, you can return the ICICI Pru Saral Pension Policy within 15 days from the date you received it or 30 days from the date you received it, in case of electronic policies or ICICI Pru Saral Pension policies purchased through Distance Mode.

6.) How to Surrender ICICI Pru Saral Pension Plan?

The ICICI Pru Saral Pension policy can be surrendered any time after six months from the date of commencement if the annuitant/ primary annuitant/ secondary annuitant or the spouse or any of the children of the annuitant is diagnosed as suffering from any of the 20 specified critical illnesses as described in Terms and Conditions of the ICICI Pru Saral Pension policy. On approval of surrender, 95% of the Purchase price shall be paid to the annuitant, subject to deduction of outstanding loan amount and loan interest, if any.

7.) What are the Advantages of ICICI Pru Saral Pension Plan?

• You can choose to take an annuity for a Single Life or a Joint Life.
• A discount on the purchase price will be offered for ICICI Pru Saral Pension policies purchased using proceeds out of NPS.
• Loan can be availed any time after six months from the date of commencement of the ICICI Pru Saral Pension policy

8.) What are the Disadvantages of the ICICI Pru Saral Pension Plan?

• The annuity option and mode once opted cannot be changed after the free-look period.
• An annuity is fully taxable.
• You can’t surrender other than the specified conditions provided in the brochure.
• The annuity is constant throughout the lifetime and not adjusted to inflation.

9.) Research Methodology of ICICI Pru Saral Pension Plan

A regular guaranteed income for a lifetime in ICICI Pru Saral Pension seems an attractive option for retirees. Here comes a question. Will your income source be good enough to pay all your expenses and bills? Can it be relied on as your primary source of income? To answer all these hiccups, let us work out the rate of return.

Benefit illustration – IRR(Internal Rate of Return i.e. Interest rate) Analysis of ICICI Pru Saral Pension Plan

A 60-year-old male opts for the ICICI Pru Saral Pension Plan. The purchase price is ₹ 20 Lakhs. The annual annuity is ₹ 1,36,342.

Male	60 years
Purchase price	₹ 20 Lakhs
Annual Annuity	₹ 1,36,342

Since the ICICI Pru Saral Pension plan provides an annuity till the lifetime of the policyholder, we have assumed a life expectancy of 85 years of age. On the death of the annuitant, the purchase price is returned to the nominee.

Age	Year	Annualised premium / Maturity Benefit	Death Benefit
60	1	-20,00,000	20,00,000
61	2	1,36,342	20,00,000
62	3	1,36,342	20,00,000
63	4	1,36,342	20,00,000
64	5	1,36,342	20,00,000
65	6	1,36,342	20,00,000
66	7	1,36,342	20,00,000
67	8	1,36,342	20,00,000
68	9	1,36,342	20,00,000
69	10	1,36,342	20,00,000
70	11	1,36,342	20,00,000
71	12	1,36,342	20,00,000
72	13	1,36,342	20,00,000
73	14	1,36,342	20,00,000
74	15	1,36,342	20,00,000
75	16	1,36,342	20,00,000
76	17	1,36,342	20,00,000
77	18	1,36,342	20,00,000
78	19	1,36,342	20,00,000
79	20	1,36,342	20,00,000
80	21	1,36,342	20,00,000
81	22	1,36,342	20,00,000
82	23	1,36,342	20,00,000
83	24	1,36,342	20,00,000
84	25	1,36,342	20,00,000
85	26	20,00,000	20,00,000
	IRR	6.70%

The IRR calculation for this cash flow results in 6.70%. As a senior citizen, this rate of return may be convincing as you get guaranteed benefits. But getting the same annuity throughout your lifetime is the major hurdle in this plan.

In the initial years, the annuity seems to cover your expenses but down the lane, the annuity loses its purchasing power. That means, over a period, you can’t afford even the basic things with the annuity income. Moreover, you get locked up in the investment for your lifetime.

10.) ICICI Pru Saral Pension Plan – What are the Alternate investment options?

In order to have a regular source of income, there are plenty of investment vehicles. Especially for Senior Citizens, the rates are comparatively higher.

Alternate Investment option	Interest Rate
Senior Citizen Savings Scheme (SCSS)	8.20%
Bank FD	7% – 8%
RBI Floating Rate Bonds	8.05% (Floating)

SCSS and bank FDs both provide set returns throughout the term. For RBI floating bonds, the interest rate varies, though. Each of the options listed above will have a set interest rate. The return and liquidity are better in these alternate options when compared to the ICICI Pru Saral Pension Plan.

The above options miss a point called inflation. To receive a regular income that is adjusted for inflation, you must increase the amount of equity in your portfolio. We will use the aforementioned example to determine how rebalancing the portfolio every six years will yield an inflation-adjusted return. Here we have assumed an initial annuity similar to the ICICI Pru Saral Pension plan.

Inflation Adjusted Regular Income

Let us assume that 60% of ₹ 20 Lakhs is invested in Equity for wealth creation and the balance in Debt for regular needs. Equity return is assumed as 12% and debt return as 6%. Every 6 years debt portion is replenished from equity. Also, every 6 years, your annual withdrawal increases by 6% to combat inflation.

Age	Equity Portion			The shift from Equity to Debt	Debt Portion
	Opening Balance	Yearly withdrawal	Closing Balance		Opening Balance	Yearly withdrawal	Closing Balance
60	12,00,000	–	13,44,000	–	8,00,000	1,36,342	7,03,477
61	13,44,000	–	15,05,280	–	7,03,477	1,36,342	6,01,164
62	15,05,280	–	16,85,914	–	6,01,164	1,36,342	4,92,711
63	16,85,914	–	18,88,223	–	4,92,711	1,36,342	3,77,751
64	18,88,223	–	21,14,810	–	3,77,751	1,36,342	2,55,894
65	21,14,810	–	23,68,587	–	2,55,894	1,36,342	1,26,725
66	23,68,587	8,00,000	17,56,818	8,00,000	9,26,725	1,44,523	8,29,134
67	17,56,818	–	19,67,636	–	8,29,134	1,44,523	7,25,688
68	19,67,636	–	22,03,752	–	7,25,688	1,44,523	6,16,036
69	22,03,752	–	24,68,202	–	6,16,036	1,44,523	4,99,804
70	24,68,202	–	27,64,387	–	4,99,804	1,44,523	3,76,599
71	27,64,387	–	30,96,113	–	3,76,599	1,44,523	2,46,001
72	30,96,113	8,00,000	25,71,647	8,00,000	10,46,001	1,53,194	9,46,375
73	25,71,647	–	28,80,244	–	9,46,375	1,53,194	8,40,772
74	28,80,244	–	32,25,874	–	8,40,772	1,53,194	7,28,833
75	32,25,874	–	36,12,978	–	7,28,833	1,53,194	6,10,177
76	36,12,978	–	40,46,536	–	6,10,177	1,53,194	4,84,403
77	40,46,536	–	45,32,120	–	4,84,403	1,53,194	3,51,081
78	45,32,120	45,32,120	-0	45,32,120	48,83,201	1,62,386	50,04,065
79					50,04,065	1,62,386	51,32,180
80					51,32,180	1,62,386	52,67,982
81					52,67,982	1,62,386	54,11,932
82					54,11,932	1,62,386	55,64,520
83					55,64,520	1,62,386	57,26,262
84					57,26,262	1,62,386	58,97,709
85					58,97,709	1,62,386	60,79,443

Even after retirement, this strategy helps in the fight against inflation. Here, the equity portion is completely transferred to debt at the age of 78. You can decide this based on your willingness to take risks. Even if we shift the entire corpus to debt, the corpus outlives you.

i.)ICICI Pru Saral Pension Plan Vs HDFC Life Systematic Retirement Plan

Some of the features of HDFC Life Systematic Retirement Plan are,

The premium payment term and deferment period are choices that you can make whenever it’s most convenient for you.

Frequency of annuity payouts: monthly, quarterly, half-yearly, annual, or on a date of your choosing.

The premium amount may be determined by the future annuity payout you hope to receive or by the premium you desire to pay to purchase the annuity plan.

You can read the review of HDFC Life Systematic Retirement Plan to know whether this is a Good or Bad option for your retirement life.

ii.) ICICI Pru Saral Pension Plan Vs ICICI Pru Easy Retirement Plan

Let’s look at some of the options in the ICICI Pru Easy Retirement Plan,

Top-Up Option: If you want to increase the value of the fund, you can add more savings. Your paid premium will be added, along with a top-up.

Income Tax Benefit: Under section 80C, life insurance premiums paid up to Rs. 1,50,000 may be deducted from taxable income annually.

Freelook Period: The policyholder has 15 days from the date of receipt of the policy document to cancel the policy if they are not satisfied with the terms and conditions.

Read the complete review of the ICICI Pru Easy Retirement Plan to understand the advantages and disadvantages of this plan.

11.) Alternate Investment Plans For ICICI Pru Saral Pension Plan – Analysis Conclusion

After a thorough analysis of all other Alternate Investment Plans For ICICI Pru Saral Pension Plan, it is very clear that the combination of Insurance plus investment doesn’t work. Bank FD and SCSS are some of the investment options if you’re aiming for returns on par with inflation. If you are an investor who wants to beat inflation and, at the same time not willing to take too much risk, then Equity and Debt Mutual Funds is the best option as we proved in the previous illustration.

12.) Final Verdict on ICICI Pru Saral Pension Plan – Good or Bad Investment Option?

ICICI Pru Saral Pension plan is a hassle-free one-time investment plan. It offers regular income and the annuity amount is predetermined at the time of policy inception and the nominee gets back the Purchase Price. The agents may want to sell you this plan for the high agent commission that they get.

The annuity that you receive under the ICICI Pru Saral Pension plan may seem like a sizeable amount in the initial years. In the long run, you may find difficulties in meeting the expenses with the annuity. You may feel the pinch in the later years. So, Investing in the ICICI Pru Saral Pension plan is not the right choice.

The common question that is tricking every retiree’s mind is how to maintain the same standard of living after retirement. During your post-retirement period, tackling your everyday expenses and other medical bills without a regular source of income is a big challenge.

The reason behind this is Inflation. Inflation hits retirees harder than earning members.

So, to get inflation-adjusted income use the alternate investment strategy that we suggested. This strategy will help to maintain your standard of living during your post-retirement period. Moreover, you have liquidity in these investments.

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