Everyone wants to lead a peaceful life after retirement.
But a peaceful life at a period where you are unemployed, still needs a regular stream of guaranteed income.
This regular income is important to maintain your current lifestyle and to meet any of your medical expenses.
SBI Saral pension is an immediate annuity plan. It provides you with a regular income, with the return on the purchase price, without letting you make any compromises.
Can this plan be relied upon to have a golden retirement life?
Let us dive deep into this plan to better frame our judgement.
Table of Contents:
What is SBI Life – Saral Pension Plan?
SBI Life – Saral Pension Plan is a single premium, individual, non-linked, non-participating, immediate annuity product.
It claims to provide you with regular income, with the return on purchase price. It also offers a Joint life option to cover your spouse as well.
It secures your retirement life with the guaranteed regular income to meet all your expenses including your medical expenses.
Features of SBI Life – Saral Pension Plan:
- It is a single premium plan.
- You can choose the annuity mode at inception – Monthly, Quarterly, Half-yearly or yearly.
- You can use your life cover individually or you can choose to cover your spouse as well in joint life option.
- Steady cash flow throughout the life of the annuitant.
- The purchase price (premium paid) is returned to the nominee or legal heir.
- You have the option to avail of the loan facility in case of any financial need.
- You have the option to avail the surrender facility on being diagnosed with a specified critical illness.
Eligibility Criteria of SBI Life – Saral Pension Plan:
|Age at Entry* (as on last birthday)||40 Years (Under Joint life – Limit apply to both the life)||80 Years (Under Joint life – Limit apply to both the life)|
|Premium||Such that the minimum annuity instalment can be paid as per the annuity payment mode.||No limit, as per Board Approved Underwriting Policy|
|Minimum Annuity Pay-out (per instalment)||Monthly: 1,000
Half-Yearly: 6,000 Quarterly: 3,000
|No limit, as per Board Approved Underwriting Policy|
|Premium Payment Term||Single Premium|
|Annuity Payment Mode||Monthly or Quarterly or Half-Yearly or Yearly|
Annuity Options of SBI Life – Saral Pension Plan:
1.) Life Annuity with Return of 100% of Purchase Price (ROP):
Annuity is payable in arrears at a constant rate throughout the life of the Annuitant. On death of the Annuitant, all the future annuity pay-outs cease immediately and the purchase price is refunded to the nominee/legal heirs.
2.) Joint Life Last Survivor Annuity with Return of 100% of Purchase Price (ROP) on the death of the last survivor:
On the death of the primary annuitant, if the spouse is surviving, the spouse continues to receive the same amount of annuity for life until his/her death. On the death of the last survivor, the purchase price shall be payable to the nominee/legal heirs.
If the spouse has pre-deceased the primary annuitant, then on the death of the primary annuitant, the Purchase price shall be payable to the nominee / legal heirs.
Other Options of SBI Life – Saral Pension Plan:
You can avail the loan option at any time after six months from the date of commencement of the policy.
Higher Purchase price:
|Purchase Price Range||Price incentive per thousand Purchase Price|
|Less than 2,00,000||Nil|
|2,00,000 to less than 5,00,000||Nil|
|5,00,000 to less than 10,00,000||2.75|
|10,00,000 less than 25,00,000||3.75|
|25,00,000 and above||4.25|
For annuities in payment, the Existence Certificate in the format prescribed by the Company is to be submitted by the Annuitant / Primary Annuitant / Secondary Annuitant as and when required by the Company. Annuity payments shall be released only on receipt of the Existence Certificate.
Free Look-up Period of SBI Life – Saral Pension:
If the policyholder is not satisfied with the terms and conditions of SBI Life – Saral Pension after purchasing the policy, then the policyholder can return the policy by stating the return within 15 days from the date of purchasing the policy.
The free look-up period will be 30 days if the policy was purchased through electronic mode.
Surrendering/Cancelling the SBI Life – Saral Pension Plan:
The SBI Life – Saral Pension Plan can be surrendered any time after six months from the date of commencement.
If the annuitant / primary annuitant /secondary annuitant, or spouse or any of the children of the annuitant is diagnosed to be suffering from any of the critical illnesses (as listed in the policy details), then 95% of the Purchase Price shall be paid to the annuitant. On payment of the surrender value, the policy stands terminated.
Advantages of SBI Life – Saral Pension Plan:
- Regular cash flow similar to salary structure is paid to the policyholder during the post-retirement period.
- Hassle free investment – Lumpsum investment option (one-time premium payment).
- You can avail the loan option after 6 months.
- You have the option to surrender the policy after 6 months in case of any critical illness.
- The return of purchase price is an in-built feature, which acts as a legacy to the nominee or legal heir.
Disadvantages of SBI Life – Saral Pension Plan:
- Though the income is regular, the return on investment is not on par with other fixed income products, which is available in the market.
- The annuity amount is constant throughout the policyholder’s lifetime, which may not be sufficient to meet the rising expenses down the lane.
- The annuity is taxable at the individual’s highest slab rate.
- Annuity is fully taxable. Any annuity purchased directly (other than proceeds of any pension plan like superannuation) becomes taxable under the head “Income from other sources” and not “Salaries” therefore not eligible for the standard deduction.
You can read further details of the SBI Life – Saral Pension Plan in its brochure.
Since we have all the relevant information we need, now it’s time to analyze this SBI Life – Saral Pension Plan by calculating its IRR for the two Annuity options this plan offers.
Then, let us compare the IRR of the SBI Life Insurance Child Plan with other alternate investments to see which gives you a better return in the long run.
IRR of SBI Life – Saral Pension:
There are two options of Annuity, which we can see illustrated below at a glance.
|Annuity Options||Annual annuity amount||Annuity amount as a % age of Purchase price||Death benefit|
|Option 1: Life Annuity with Return of 100% of Purchase price (ROP)||58,721||5.87||10,00,000|
|Option 2: Joint Life Last Survivor Annuity with Return of 100% of Purchase Price (ROP)
on death of the last survivor
Annuitant age – 60 years.
Life expectancy – 85 years.
Now let us see the IRR for both the annuity options for the policyholder we have assumed above.
|Option 1||Option 2|
|Age||Year||Purchase price / Annuity||Purchase price / Annuity|
For both the annuity options, the IRR works out to be around 5.7%, which is similar to the Bank FD rate for any individual. The bank FD rate for senior citizens is higher than this rate.
From the taxation point of view, the FD interest & the annuity, both are taxable. A deduction of up to Rs. 50000 on interest received from the Bank savings account & also Senior citizens can claim FDs under Sec 80 TTB.
Also, the bank FDs can be easily liquidated. In the rising interest rate scenario, locking funds for the long term at this rate of return is not advisable.
SBI Life – Saral Pension Plan Vs Other Investment Choices:
As the annuity is perpetually fixed till the lifetime of the annuitant, let’s compare it with other fixed income options like;
- Senior Citizen Savings Scheme (SCSS)
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)
- RBI Floating Rate Bond
- Bank FD
|SBI – Saral Pension plan||SCSS||PMVVY||RBI Floating rate Bond||FD|
|Average Return %||5.70%||7.40%||7.40%||7.15%||5.5% – 6.5%|
|Tenure||Perpetual||5 years||10 years||7 Years||Ranging from 12 months to 60 months|
|Frequency||Monthly or Quarterly or Half-Yearly or Yearly||Quarterly||Monthly or Quarterly or Half-Yearly or Yearly||Half-yearly||Monthly or Quarterly or Half-Yearly or Yearly|
|.Maximum investment||No limit||15 lakhs||10 lakhs||No Limit||No limit|
|Minimum age at entry||40 years of age||60 Years of age
55 years of age to invest retirement benefit
|60 Years of age||No Limit||No limit|
|Annual annuity / Interest (Purchase price 10 Lakh)||57,000 p.a.||74,000 p.a.||74,000 p.a.||71,500 p.a.||Range 55K to 65K p.a.|
|Taxation on investment||No benefit||Sec 80 C Rs. 1.5 lakh||Sec 80 C Rs. 1.5 lakh||No Benefit||No benefit|
|Taxation on income||Taxable at Slab rate||Sec 80 TTB Exempt – Rs. 50,000
Excess taxable at slab rate
|Sec 80 TTB Exempt – Rs. 50,000
Excess taxable at slab rate
|Taxable at Slab rate||Sec 80 TTB Exempt – Rs. 50,000
Excess taxable at slab rate
|Return of purchase price (On Maturity / Death)||Yes||Yes||Yes||Yes||Yes|
|Premature Withdrawal||After 6 months – On diagnosis of 20 listed critical illness||Allowed with penalty||On diagnosis of critical illness – 98% of purchase price is returned||Allowed for Senior citizens||Allowed with penalty|
|Life Certificate||Required||Not required||Required||Not required||Not required|
From the above, it is clear that government-backed schemes with the same fixed income options can give you better returns compared to SBI Life – Saral Pension Plan.
SBI Life – Saral Pension Plan doesn’t seem to give inflation-beating returns and also doesn’t seem like an adequate insurance product.
Let us look at investment strategies that could provide you with both regular income with better returns.
An overview of Retirement plan – Investment Strategy:
Throughout your working years, you might have built a considerable amount of corpus to be spent in the next phase of your life, which is your retirement period to help you sustain. You must make the best use of such corpus to get an inflation-adjusted regular stream of income.
You can consider the following Investment Strategy to get an inflation-adjusted post-retirement income.
Corpus for Regular Income:
DEBT – Liquid fund (emergency corpus), Debt funds – for Systematic withdrawal (SWP), SCSS, PMVVY, RBI Bonds, Bank & Corporate deposits.
Corpus to Beat Inflation:
EQUITY – Indexed Funds, Hybrid – Aggressive, Dynamic Asset allocation fund.
Rebalancing your Portfolio:
Refill your debt portion once in 6 years from the equity portion. Your debt balance will remain the same as you take out the interest annually while equity might have doubled by that time.
So, rebalancing your portfolio at the regular interval mentioned above will help you to fetch higher annual withdrawal than before.
The following is an illustrative working example of the above strategy.
|Equity Investment||30,00,000||Debt Investment||70,00,000|
|Equity Int rate||12%||Debt Int rate||6%|
|Year||Equity Balance||Shift from equity to Debt||Debt Balance|
|At the Start of year 1||30,00,000||–||70,00,000|
|At the end of 6 years||60,00,000||–||70,00,000|
|At the start of year 7||30,00,000||30,00,000||1,00,00,000|
|At the end of 12 years||60,00,000||–||1,00,00,000|
|At the start of year 13||30,00,000||30,00,000||1,30,00,000|
|Year||Debt Balance * Debt Int rate||Annual Income|
|Year 1 -6||70,00,000*6%||4,20,000|
|Year 7 – 12||1,00,00,000*6%||6,00,000|
|Year 13 – 18||1,30,00,000*6%||7,80,000|
By following the above strategy, you will get an inflation-adjusted regular annual income. This will help you to keep pace with the inflation.
This advantage is missing in the SBI life – Saral pension plan where you get a fixed annual income throughout your life.
The sales pitch of any annuity scheme will be “GUARANTEED REGULAR INCOME FOR LIFE” during your post retirement period. Yes, it is a great advantage.
But if you take areas like taxation, liquidity and inflation into consideration, it makes SBI Life – Saral Pension plan look unattractive. There are other products with sovereign guarantee & better tax benefit, available in the market.
The retirees should keep in mind that not only their regular cash flow but also their tax liability & corpus should outlive them.
The biggest challenge would be to build a portfolio with the right mix of various investment products. Considering the current inflation rate and the rising medical expenses, this annuity plan can’t be solely relied for your post-retirement income.
So, it would be better if you diversify across different investments & rebalance your portfolio as & when necessary to get an inflation-adjusted income during your post-retirement period.
You can also consult a Financial Advisor for better understanding as he can draft you a tailor-made retirement plan.
You can avail of our complimentary consultation with one of our financial planners by registering through the below link.