LIC Saral Pension Review– Should You Buy?

Annuity plans offer a regular stream of income after retirement. You can decide the investment amount based on your pension amount that you need at the time of retirement. Under Immediate annuity plans, a pension starts within a year whereas under a deferred annuity, you may start receiving the annuity after the end of the deferment period.

LIC’s Saral pension is an immediate annuity plan. In this article, let us review the Advantages(pros) and Disadvantages(cons) of the LIC Saral Pension plan in detail and find out whether this plan is a Good or Bad option for those who need regular income after retirement.

This analysis provides you with insights about the plan and helps you in your decision-making.

Let’s get started!

Table of Contents

1.)LIC Saral Pension – What is it?
2.)Features of LIC Saral Pension – Analysis
3.)Who is Eligible for LIC Saral Pension?
4.)Annuity Plan Options in LIC Saral Pension – Review
5.)What is the Free-Look Period for LIC Saral Pension?
6.)How To Surrender Your LIC Saral Pension Policy?
7.)Advantages of LIC Saral Pension – Analysis
8.)Disadvantages of LIC Saral Pension – Analysis
9.)Research Methodology of LIC Saral Pension
Benefit Illustration – IRR(Internal Rate of Return) Analysis of LIC Saral Pension
10.)LIC Saral Pension vs. Other Investment Options

• LIC Saral Pension Vs. Other Fixed Return Instruments
• LIC Saral Pension Vs. Other Fixed Return Instruments – Analysis with Illustration
• Inflation Adjusted Income – Analysis with Illustration
• LIC Saral Pension vs. LIC New Pension Plus
• LIC Saral Pension vs. LIC Jeevan Umang

11.)LIC Saral Pension vs. Other Investment Plans – Review Conclusion
12.)Final Verdict on LIC Saral Pension – Good or Bad?

1. LIC Saral Pension – What is it?

It is a Non-Linked, Non-Participating, Single Premium, Individual Immediate Annuity Plan. The Policyholder has the option to choose the type of annuity from two available options on payment of a lump sum amount. The policy’s initial installment includes a guarantee of the annuity rates, and payments are made for the duration of the annuitant(s)’s life.

Refer to the LIC Saral Pension brochure for complete policy details.

2. Features of LIC Saral Pension – Analysis

• There are two annuity options available in the LIC Saral Pension Plan.
• It provides a lifelong annuity.
• Return of 100% of Purchase Price.

3. Who is Eligible for LIC Saral Pension?

	Minimum	Maximum
Age at Entry	40 years	80 years
Annuity Mode	Monthly	Quarterly	Half-yearly	Annual
Minimum Annuity	₹ 1,000 per month	₹ 3,000 per month	₹ 6,000 per month	₹ 12,000 per month

4. Annuity Plan Options in LIC Saral Pension – Review

LIC Saral Pension has two Annuity Plan Options and they are,

Option 1

Depending on the style of annuity payment selected, the annuity payments must be made in arrears for the duration of the annuitant’s life. On the death of the annuitant, the annuity payment shall cease immediately and 100% of the Purchase Price shall be payable to the nominee(s)/legal heirs.

Option 2

The annuity amount shall be paid in arrears for as long as the Annuitant and/or spouse are alive, as per the chosen mode of annuity payment. • On the death of the last survivor, the annuity payments will cease immediately and 100% of the Purchase Price shall be payable to the nominee(s)/legal heirs.

5. What is the Free-Look Period for LIC Saral Pension?

If you are not satisfied with the “Terms and Conditions” of the LIC Saral Pension policy, the policy may be returned to the Corporation within 30 days from the date of receipt of the electronic or physical mode of the LIC Saral Pension Policy Document, whichever is earlier.

6. How To Surrender Your LIC Saral Pension Policy?

The LIC Saral Pension policy can be surrendered at any time after six months from the date of commencement, If the annuitant, their spouse, or any of their offspring are found to have any of the following conditions, based on the documents produced to the satisfaction of the medical examiner of the Corporation.

7. Advantages of LIC Saral Pension – Analysis

• Single payment Hassle-free investment.
• The LIC Saral Pension Policy loan shall be allowed at any time after six months from the date of commencement of the policy.
• No deferment periods.

8. Disadvantages of LIC Saral Pension – Analysis

• Fixed annuity throughout a lifetime and not adjusted to inflation.
• The LIC Saral Pension policy can be surrendered only on specified conditions.
• Your funds get locked.
• An annuity is fully taxable in LIC Saral Pension.

9. Research Methodology of LIC Saral Pension

So far, we discussed the features, Advantages(pros), and Disadvantages of LIC Saral Pension. Let us take the next step in our analysis. In this part of our analysis, we shall find out the suitability of the product by calculating the return on investment. This can be done by calculating the Internal rate of Return (IRR) for the benefit illustration given in the sales brochure.

Benefit Illustration – IRR(Internal Rate of Return) Analysis of LIC Saral Pension

A 60-year-old male buys LIC Saral Pension for ₹ 10 Lakhs (Purchase price). He chooses option 1 – Life Annuity with a Return of 100% of the Purchase Price. He receives an annual annuity of ₹ 64,350. He receives the same amount throughout his lifetime. Here, we assume that the life expectancy is 85 years.

Male	60 years
Purchase Price	10 Lakhs
Annuity	64,350
Annuity Option	Option 1

Age	Year	LIC SARAL PENSION
		Annualized premium / Maturity benefit
60	1	-10,00,000
61	2	64,350
62	3	64,350
63	4	64,350
64	5	64,350
65	6	64,350
66	7	64,350
67	8	64,350
68	9	64,350
69	10	64,350
70	11	64,350
71	12	64,350
72	13	64,350
73	14	64,350
74	15	64,350
75	16	64,350
76	17	64,350
77	18	64,350
78	19	64,350
79	20	64,350
80	21	64,350
81	22	64,350
82	23	64,350
83	24	64,350
84	25	64,350
85	26	10,00,000
	IRR	6.32%

In the above illustration, the IRR(Internal Rate of Return i.e. Interest Rate) is calculated at 6.32%.

A purchase price of ₹ 10 lakhs is returned to the nominee on death. The IRR calculation above shows that the return on investment is 6.32%.

You may be convinced to invest as the interest rate seems attractive for a pension scheme. But you may feel a pinch 10 years later. The reason is that inflation eats away at the purchasing power of money.

10. LIC Saral Pension vs. Other Investment Options

You need to invest your retirement kitty in a diversified portfolio so that your corpus outlives you. Investing in annuity plans is not a solution as your money gets locked for a lifetime.

Now, let us look at the avenues where you can park your retirement corpus. The following instruments provide you with a regular stream of income similar to pension plans. At the same time, you can utilize it as you wish throughout your lifetime.

i) LIC Saral Pension Vs. Other Fixed Return Instruments – Analysis with Illustration

We have listed out a few avenues for getting a regular stream of income with better liquidity options. The following table will give better insights into each instrument.

Criteria	Senior Citizen Savings Scheme (SCSS)	Bank FD	RBI Floating Rate Bonds
Eligibility	Available for Indian residents aged 60 and above.	Available for individuals of all ages.	Available for individuals and institutions.
Tenure	5 years, can be extended for another 3 years.	Varies, typically from 7 days to 10 years or more.	7 years or more, depending on the series.
Interest Rate	8.20%	7% – 8%	8.05% (Floating)
Interest Payout	Quarterly payouts.	Varies, can be monthly, quarterly, or at maturity.	Typically, semi-annual or annual.
Tax Benefits	Deduction under Section 80C up to ₹1.5 lakh.	No specific deduction under Section 80C.	No specific deduction under Section 80C.
Maximum Investment	₹15 lakh per individual.	No limit varies by bank.	No limit.
Premature Withdrawal	Allowed with a penalty after 1 year.	Allowed with varying penalties, terms differ by bank.	Allowed with penalties, terms depend on the series.
Risk	Considered low-risk as it’s backed by the government.	Considered low to moderate risk depending on the bank’s financial health.	Considered low-risk as it’s backed by the RBI.
Interest Rate Risk	Low interest rates are reset quarterly.	Low for fixed-rate FDs, moderate for variable-rate FDs.	Moderate, as interest rates can change with the benchmark.
Safety	Considered safe due to government backing.	Subject to the financial health of the bank. Up to ₹5 lakh insured by DICGC.	Considered safe due to RBI backing.
Suitable For	Senior citizens looking for regular income and safety.	Individuals looking for a mix of liquidity and returns.	Investors seeking a relatively higher return with moderate risk.

Bank FDs and SCSS offer fixed returns throughout the tenure. However, the interest rate varies for RBI floating bonds. All the options mentioned here will provide a fixed interest. But you have an added advantage in terms of return, liquidity, and risk. The return and liquidity are poor under LIC Saral Pension.

The above options miss a point called inflation. In order to get an inflation-adjusted regular income, you need to add equity to your portfolio. We shall take the above illustration and work out how we get an inflation-adjusted return through rebalancing the portfolio every 6 years.

ii) Inflation-Adjusted Income – Analysis with Illustration

Let us assume that 60% of ₹ 10 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.

iii) LIC Saral Pension vs. LIC New Pension Plus

Some of the features of LIC New Pension Plus are,

• The option to select the premium payment amount and LIC New Pension Plus policy duration is subject to minimum and maximum premium, policy term, and vesting age constraints.
• The process of premium payment for regular premiums can be done monthly, quarterly, half-yearly, or annually. It must be determined at the start of the LIC New Pension Plus policy term.

You can read the complete review of LIC New Pension Plus here.

iv) LIC Saral Pension vs. LIC Jeevan Umang

Some of the good features of LIC Jeevan Umang are,

• It is a strategy to cut costs.
• Survival benefit starts when the term of premium payments ends until the policyholder turns 99.

You can read the complete review of LIC Jeevan Umang here.

11. LIC Saral Pension vs. Other Investment Plans – Review Conclusion

We have clearly illustrated how equity and debt Mutual Fund investment will make you combat inflation even during the post-retirement period. The problem with retirement plans like LIC Saral Pension, LIC New Pension Plus, LIC Jeevan Umang, etc. Is that, when insurance and investment components are together the value of a plan is significantly reduced.

12. Final Verdict on LIC Saral Pension – Good or Bad?

You may think that annuity plans provide stable income which substitutes your regular source of income during your retirement years. LIC Saral Pension plan comes under the category of providing the immediate benefit (annuity) to the policyholder.

From a senior citizen’s point of view, investing in an annuity plan is acceptable, as it provides a sense of security. But Please wait! Don’t let your emotions overtake logic.

What is the ideal retirement plan?

You need to plan for retirement in a such way that your post-retirement expenses, and emergency medical needs to be taken care of. Apart from that you need to cope with inflation.

Considering all these elements leaves you with the verdict that investing in LIC Saral Pension is not beneficial.

Though we suggested a few alternate avenues to invest your retirement corpus, they failed to cope with the inflation in the long run.

In order to beat inflation in the long run, you need to invest in a diversified portfolio. The equity portion helps in wealth accumulation. The debt portion takes care of your regular needs. Over a period, the debt portion depletes which can be replenished by equity wealth accumulation. In this strategy, you can combat inflation in the long run and your corpus outlives you.

Are you searching for retirement plan options on social media platforms like Quora, Facebook, Twitter, etc.? Consult your financial planner to draft a custom-made retirement plan.