LIC New Pension Plus: Review-Should you Invest?

Any pension plan is a type of investment that helps to accumulate your retirement corpus.

• You as a policyholder contribute regularly for a specified period. This is called the
  accumulation phase.

• After the accumulation phase some of the plans allow the corpus to grow without any
  further contribution. This duration is called the deferment period.

• The Final maturity value is the vesting corpus. Then the annuity is paid periodically to you either for a predefined period or Whole life depending upon the terms of the plan. This is called the Distribution phase.

“LIC’s New Pension Plus” is a pension plan which accumulates the corpus through the market-linked
product. Then the vesting corpus can be commuted partially or can be invested in any annuity
product of the Life Insurance Corporation itself. Let’s probe the features of the plan in detail.

Table Of Contents

1.) An overview of LIC New Pension Plus

2.) Features of LIC New Pension Plus

3.) Eligibility criteria & other restrictions of LIC New Pension Plus

4.) Benefits of LIC New Pension Plus

5.) Optional benefits of LIC New Pension Plus

6.) Fund options to invest

7.) Charges under LIC New Pension Plus

8.) How to cancel/surrender LIC New Pension Plus

9.) Advantages of LIC New Pension Plus

10.) Disadvantages of LIC New Pension Plus

11.) Research Methodology on LIC New Pension Plus

12.) Benefit Illustration Analysis on LIC New Pension Plus

13.) Final Verdict on LIC New Pension Plus

An overview of LIC New Pension Plus:

LIC’s New Pension Plus is a Unit Linked, Non-Participating, individual Pension plan. This plan helps to build a corpus of systematic and disciplined savings which can be converted into regular income. 

The policyholder can purchase this plan either as Single Premium or Regular Premium payment frequency. There is a choice for investing the premiums in one of the four types of investment funds available. 

On vesting (at the end of the policy term) the Fund value can be annuitized.

Features of LIC New Pension Plus:

• Option to choose the amount of premium payable, policy term subject to minimum and maximum limits of Premium, Policy Term and Vesting Age.

• In the case of Regular Premium, the mode of premium payment can be Yearly, Half-yearly, Quarterly or Monthly. It has to be chosen at the commencement of the policy term.

• An Option to extend the accumulation period or deferment period within the same policy with the same terms and conditions as the original policy.

• Each Premium paid, after the deduction of various Charges, shall be utilized to purchase units of the Fund chosen among the 4 fund options.

• The Guaranteed Additions as a percentage of the Annual Premium/Single Premium shall be added to the Unit Fund at the end of specified policy durations.

Eligibility criteria & other restrictions of LIC New Pension Plus:

Minimum premium:

Mode/Premium Payment Frequency	Single Premium (Rs.)	Regular Premium (Rs.)
Yearly	1,00,000	30,000
Half-Yearly		16,000
Quarterly		9,000
Monthly (NACH)		3,000

Maximum Premium: No limit

Minimum / Maximum Age at Entry: 25 / 75 years

Minimum / Maximum Vesting age: 35 / 85 years

Minimum / Maximum Policy Term: 10 / 42 years

Premium Paying term: Single premium – Single, Regular premium – Same as policy term

Benefits of LIC New Pension Plus:

Death benefit:

On the death of the Life Assured before the date of Vesting:

The death benefit shall be payable as the higher of the following:

• Unit Fund Value as on the date of intimation of death; or 

• Assured Death Benefit – 105% of the Total Premiums received up to the date of death reduced by Partial Withdrawals

Utilization of the proceeds of the Policy on the death of the Life Assured:

1. Withdraw the entire proceeds of the policy. A settlement option shall also be available which can be spread over a period of not more than five years from the date of intimation of death of Life Assured.  
2. Utilize the entire proceeds or part thereof for purchasing an immediate or deferred annuity at the then prevailing annuity rates from the Corporation or from other Insurers (subject to 50% of the total proceeds of the insurance, commutation included).

The benefit payable on Vesting (i.e., at the end of the Policy Term):

Upon Life Assured’s continued survival till the vesting date:

Unit Fund Value shall be payable as a sum.

Annuitization of the proceeds from the vesting policy:

1. To utilize the entire proceeds to purchase an immediate or deferred annuity at the then prevailing annuity rates from the Corporation or another Insurer (subject to 50% of entire proceeds of the policy net of commutation).
2. To commute up to 60% and utilize the balance amount to purchase an immediate or deferred annuity at the then prevailing annuity rates from the Corporation or another Insurer (subject to 50% of the entire proceeds of the policy net of commutation).

Guaranteed Additions:

Guaranteed Additions shall be payable only if all due premiums have been paid. It shall be converted to several units and shall be credited to the opted fund. Not payable to paid-up policy.

End of Policy Year	Guaranteed Additions per annum (as a percentage of one Annual Premium)	Guaranteed Additions per annum (as a percentage of a Single Premium)
6th	5.00%	4.00%
10th	10.00%	5.00%
11th to 15th	4.00%	1.25%
16th to 20th	5.50%	1.50%
21st to 25th	7.00%	2.00%
26th to 30th	8.75%	2.50%
31st to 35th	10.75%	3.00%
36th to 40th	13.00%	3.75%
41st to 42nd	15.50%	4.50%

Whether these Guaranteed Additions help you increase your overall return or not is need to be analysed before concluding.

Optional benefits of LIC New Pension Plus:

Partial Withdrawals:

One can partially withdraw the units at any time after the 5 years lock-in period. It is allowed only for the stipulated reasons.

Options to extend the date of Vesting:

Option to extend the accumulation period or deferment period (i.e., policy term) within the same policy with the same terms and conditions as the original policy. 

Switching: 

The option to switch between any of the four funds is available where the entire fund value is switched to the new fund. After that Rs.100 per Switch. 

Settlement option:

On the death of policy holder before the vesting date & if the nominee chooses to withdraw the entire death benefit, then he has to specify the mode of paying the Death Benefit (i.e., yearly, half-yearly, quarterly or monthly instalments). It can spread over a period of not more than five years from the date of intimation of death of Life Assured.

Fund options to invest:

Unit Fund: You will have the option to choose any One of the following 4 funds to invest your premiums.

Fund Type	Govt Guaranteed Securities/ Corporate Debt	Short-term investments such as money market instruments	Listed Equity Shares	Risk Profile
Pension Bond Fund	60% to 100%	0% to 40%	Nil	Low Risk
Pension Secured Fund	50% to 90%	0% to 40%	10% to 50%	Lower to Medium Risk
Pension Balanced Fund	30% to 70%	0% to 40%	30% to 70%	Medium Risk
Pension Growth Fund	0% to 60%	0% to 40%	40% to 100%	High Risk
Pension Discontinued Fund	20% to 100%	0% to 80%	Nil	NA

Charges under LIC New Pension Plus:

Premium Allocation Charge:

This is the percentage of the Annual premium / Single premium. It depends on the policy year, annual premium amount & Mode of purchase – Offline or online. It ranges between 1.5% & 7%.

Mortality Charge: Nil

Policy Administration Charge:

This Charge shall be levied at the beginning of each policy month. This Charge shall be deducted in the first 5 years only. It shall be based on the policy year, premium paying mode – Yearly, Half-yearly, Quarterly or Monthly, Premium paying term – Single/regular pay. 

Fund Management Charge:

1.35% for all the 4 Funds

0.50% for Pension Discontinued fund.

Switching Charge: 

Within a given policy year, 4 switches shall be allowed free of charge. Subsequently Rs. 100 per switch.

Bid/Offer Spread: Nil

Discontinuance Charge:

This charge is based on the year it is discontinued, the premium amount & premium paying term. It is NIL from the 5th policy year onwards.

Partial Withdrawal Charge:

It shall be a flat amount of Rs. 100 levied on the Unit Fund Value at the time of each Partial Withdrawal of the Fund.

Miscellaneous Charge:

A flat amount of Rs. 100 will be levied for an alteration during the contract.

Insight on Charges:

Compared to other investments charges are higher, though charges like  Fund Management Charges are reasonable, some charges like Premium Allocation Charge, Discontinuous Charge, Partial Withdrawal Charge, and Miscellaneous Charges are unreasonable. 

Even though the ULIP Plans offer a 4-8% of return, if we include the charges, then we will get less than a 4-8% of investment return. 

A Grace period, Revival, Discontinuance & Paid-up policy

Grace Period:

 A grace period is 30 days for the payment of yearly or half-yearly or quarterly premiums and 15 days for monthly (NACH) premiums.

Revival: 

One can opt to revive the policy during the Revival Period of 3 years from the date of the first unpaid premium or up to the date of Vesting, whichever is earlier.

Discontinuance of policy & Paid-up policy:

Discontinuance of policy

If the policy is discontinued during the 5 years lock-in period: The policy can be revived as stated above or the policy shall continue without any risk cover and the policy shall remain invested in Discontinued Policy Fund.

Paid-up policy:

If the policy is discontinued after the 5 years lock-in- period: The policy shall be converted into a reduced paid-up policy. The policy shall continue to be in reduced paid-up status & applicable charges will be deducted from the fund.

How to cancel/surrender LIC New Pension Plus:

Free look period

If you are not satisfied with the “Terms and Conditions” of the policy, the policy may be returned to the Corporation within a period of 30 days from the date of receipt of the Policy Document

Surrender

If the policy is surrendered during the 5-year lock-in period: The Unit Fund Value, after deducting the applicable Discontinuance Charges, shall be transferred to the Discontinued Policy Fund & continues until the end of the lock-in period.

If the policy is surrendered after the 5-year lock-in period: The Unit Fund Value as on the date of intimation of surrender shall be payable on surrender to the Life Assured. There is no Discontinuance Charge under the policy. The policyholder can utilise the proceeds to buy annuity products.

Advantages of LIC New Pension Plus:

• There is flexibility in choosing the premium paying term, and vesting period. This can be extended at any time during the policy term.

• The mode of premium paying frequency can be chosen as per convenience

• Fund options can be chosen based on risk profile.

• Free switches are allowed.

• Guaranteed addition increases the Fund value.

• Partial withdrawal is allowed.

Disadvantages of LIC New Pension Plus:

• There is no loan option available.

• The lock-in period is 5 years for surrendering the policy.

• The premium is invested after the deduction of various charges.

• Only the death benefit proceeds are allowed to withdraw fully. On vesting, either annuitisation is done for the whole proceeds or partly commuted & then annuitized.

• This is a combination of the ULIP & Annuity plan where the annuity plan can opt at the vesting age.

Research Methodology on LIC New Pension Plus:

Now, we have seen all the important details that we need to know about LIC New Pension Plus.

But these details can only give us an overview of this plan. It does not help us to decide, whether this ULIP plan is suitable for our portfolio or not. So, now, let’s do detailed research on LIC New Pension Plan to see whether this plan can help us or not.

First, let us calculate the IRR of LIC New Pension Plus for the worst-case scenario and the best-case scenario by using the LIC New Pension Plus online calculator.

Then, we are going to use the same value to calculate the IRR of other investments.

Later, we will compare the other investments with LIC New Pension Plus to see which gives us a better result.

This can help us to decide whether this plan is suitable for your investment portfolio or not.

Benefit Illustration Analysis on LIC New Pension Plus:

Here in the illustration, at the end of the premium paying term, the fund value (accumulated corpus) is assumed to be invested without taking any commutation in an annuity plan of the Corporation under the life annuity option. It is a lifelong annuity without a return on the purchase price.

Male	40 years
Policy term	15
PPT	15
Annual premium	1,50,000

		At 4% p.a.		At 8% p.a.
Age	Year	Annualised premium / Maturity benefit	Death benefit	Annualised premium / Maturity benefit	Death benefit
41	1	-1,50,000	1,57,500	-1,50,000	1,57,500
42	2	-1,50,000	2,88,872	-1,50,000	3,05,738
43	3	-1,50,000	4,41,245	-1,50,000	4,76,158
44	4	-1,50,000	5,97,251	-1,50,000	6,57,349
45	5	-1,50,000	7,56,976	-1,50,000	8,49,988
46	6	-1,50,000	9,30,494	-1,50,000	10,64,867
47	7	-1,50,000	11,00,615	-1,50,000	12,85,789
48	8	-1,50,000	12,74,761	-1,50,000	15,20,635
49	9	-1,50,000	14,53,026	-1,50,000	17,70,281
50	10	-1,50,000	16,50,507	-1,50,000	20,50,662
51	11	-1,50,000	18,43,660	-1,50,000	23,39,713
52	12	-1,50,000	20,41,381	-1,50,000	26,46,982
53	13	-1,50,000	22,43,779	-1,50,000	29,73,616
54	14	-1,50,000	24,50,965	-1,50,000	33,20,836
55	15	-1,50,000	26,63,051	-1,50,000	36,89,940
56	16	2,14,131		2,96,701
57	17	2,14,131		2,96,701
58	18	2,14,131		2,96,701
59	19	2,14,131		2,96,701
60	20	2,14,131		2,96,701
61	21	2,14,131		2,96,701
62	22	2,14,131		2,96,701
63	23	2,14,131		2,96,701
64	24	2,14,131		2,96,701
65	25	2,14,131		2,96,701
66	26	2,14,131		2,96,701
67	27	2,14,131		2,96,701
68	28	2,14,131		2,96,701
69	29	2,14,131		2,96,701
70	30	2,14,131		2,96,701
71	31	2,14,131		2,96,701
72	32	2,14,131		2,96,701
73	33	2,14,131		2,96,701
74	34	2,14,131		2,96,701
75	35	2,14,131		2,96,701
76	36	2,14,131		2,96,701
77	37	2,14,131		2,96,701
78	38	2,14,131		2,96,701
79	39	2,14,131		2,96,701
80	40	2,14,131		2,96,701
81	41	2,14,131		2,96,701
82	42	2,14,131		2,96,701
83	43	2,14,131		2,96,701
84	44	2,14,131		2,96,701
85	45	2,14,131		2,96,701
	IRR	5.09%		6.87%

	At the rate of 4%	At the rate of 8%
Fund Value	26,63,051	36,89,940
Annual Annuity	2,14,131	2,96,701

The Fund value at the end of the premium paying term is Rs 26 lakhs & Rs. 36 lakhs but the value can’t be redeemed & utilized for any other purpose. Either it can be partly commuted & purchase an annuity plan for the rest of the fund value or utilize the entire fund value to purchase an annuity plan.

For the calculation of IRR, the life expectancy is assumed as 85 years. The annuity is assumed to be received annually from the age of 56 years to 85 years (30 years). The IRR works out in the range of 5 -7%. But the lock-in concept at the end of the policy term to buy an annuity plan is paralysing the policyholder.

LIC New Pension Plus vs. Other Investments + Pure Term Insurance:

The major drawback of the LIC New Pension Plus is the lock-in of the fund even after the end of the policy term. To overcome let us look into other products for the corpus accumulation & withdrawal phase. In the LIC New Pension Plus, there is no specified death benefit, in most cases, the fund value is payable to the nominee. There is no focus on life cover.

LIC New Pension Plus Vs. PPF Vs. ELSS

The annual premium in the above illustration is Rs. 1,50,000. Since there is no mortality charge in the policy, we also assume the whole annual premium is utilised for corpus accumulation. An amount equal to the annual premium is invested in PPF / ELSS.

		Term Insurance + PPF	Term insurance + ELSS
Age	Year	Term Insurance premium + PPF	Term Insurance premium + ELSS
41	1	-1,50,000	-1,50,000
42	2	-1,50,000	-1,50,000
43	3	-1,50,000	-1,50,000
44	4	-1,50,000	-1,50,000
45	5	-1,50,000	-1,50,000
46	6	-1,50,000	-1,50,000
47	7	-1,50,000	-1,50,000
48	8	-1,50,000	-1,50,000
49	9	-1,50,000	-1,50,000
50	10	-1,50,000	-1,50,000
51	11	-1,50,000	-1,50,000
52	12	-1,50,000	-1,50,000
53	13	-1,50,000	-1,50,000
54	14	-1,50,000	-1,50,000
55	15	-1,50,000	-1,50,000
56	16	3,00,000	3,00,000
57	17	3,00,000	3,00,000
58	18	3,00,000	3,00,000
59	19	3,00,000	3,00,000
60	20	3,00,000	3,00,000
61	21	3,00,000	3,00,000
62	22	3,00,000	3,00,000
63	23	3,00,000	3,00,000
64	24	3,00,000	3,00,000
65	25	3,00,000	3,00,000
66	26	3,00,000	3,00,000
67	27	3,00,000	3,00,000
68	28	3,00,000	3,00,000
69	29	3,00,000	3,00,000
70	30	3,00,000	3,00,000
71	31	3,00,000	3,00,000
72	32	3,00,000	3,00,000
73	33	3,00,000	3,00,000
74	34	3,00,000	3,00,000
75	35	3,00,000	3,00,000
76	36	3,00,000	3,00,000
77	37	3,00,000	3,00,000
78	38	3,00,000	3,00,000
79	39	3,00,000	3,00,000
80	40	3,00,000	3,00,000
81	41	3,00,000	3,00,000
82	42	3,00,000	3,00,000
83	43	3,00,000	3,00,000
84	44	3,00,000	3,00,000
85	45	37,04,248	2,08,70,482
	IRR	7.52%	9.22%

	PPF	ELSS
Corpus Accumulation (post-tax)	40,68,209.22	58,71,692.86
Annual Annuity	3,00,000	3,00,000
Final value at the age of 85	37,04,248	2,08,70,482

During the accumulation phase, Rs. 1.5 lakh is invested in PPF / ELSS & the accumulated corpus is Rs.40 lakhs & Rs. 58 lakhs respectively.

During the withdrawal phase, the corpus is invested in Equity & Debt in the ratio of 30%:70% respectively. After an annual withdrawal of Rs. 3 lakhs for 30 years, the final value of the investment is Rs. 37 lakhs & Rs. 2 crores in PPF & ELSS respectively.  

There is liquidity in this investment option. The IRR is also better than annuity rates & ELSS – IRR has the ability to beat the inflation rate.

Final Verdict on LIC New Pension Plus:

All individual wants to enjoy their golden years with financial independence. But, LIC New Pension Plus makes the policyholder left with no option at the end of the policy term, just have to pay the piper. 

One should plan in advance & start to save for retirement. But, LIC New Pension Plus is designed to serve the policyholder in the accumulation phase. The withdrawal phase (annuity plan) is not part of this plan. 

If you have any comments or questions, write them in the comment box below.

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So, it is better to choose a product based on the goal, risk appetite & period. Locking the funds for a long period where there are no inflation-beating returns is not advisable. As an investor look into the Risk, Return & liquidity of the product & choose wisely.