Tata AIA Life Insurance Fortune Guarantee Pension Plan Review: Good or Bad?
Retirement is a period in your life where you get time for yourself.
Retirement planning is essential to have a worry-free retirement.
Tata AIA Fortune Guarantee Pension Plan proclaims that it provides regular guaranteed income for life.
This in-depth IRR analysis gives an idea of whether to buy this plan for your post-retirement income or not in detail below.
1.)What is Tata AIA Fortune Guarantee Pension Plan?
2.)Features of the Tata AIA Fortune Guarantee Pension Plan
3.)Eligibility Criteria of the Tata AIA Fortune Guarantee Pension Plan
4.)Annuity Options of the Tata AIA Fortune Guarantee Pension Plan
5.)Benefits under the Tata AIA Fortune Guarantee Pension Plan
6.)The Grace Period, Revival & Paid-up of the Tata AIA Fortune Guarantee Pension Plan
7.)Free Look-Up Period of the Tata AIA Fortune Guarantee Pension Plan
8.)Surrendering the Tata AIA Fortune Guarantee Pension Plan
9.)Advantages of the Tata AIA Fortune Guarantee Pension Plan
10.)Disadvantages of the Tata AIA Fortune Guarantee Pension Plan
11.) Research Methodology
12.) IRR Analysis of the Tata AIA Fortune Guarantee Pension Plan
13.) Tata AIA Fortune Guarantee Pension Plan Vs Other Investment Products
14.) Final Verdict on the Tata AIA Fortune Guarantee Pension Plan
It is a Non-Linked, Non-Participating, Annuity Plan. It helps you gain Financial Freedom during your second innings. The plan offers you a regular guaranteed income for life to help you manage your expenses post-retirement.
The Group version of this product helps Employer-Employee groups to purchase annuities in respect of annuity payments for their members.
Some of the basic information we need to know to enter this plan is given at a glance below;
| Minimum | Maximum | ||
|---|---|---|---|
| Entry Age | For PoS Option: 40 years Other than POS 30 years | For PoS Option: 70 years Other than POS Option 1 & 2: 85 years Option 3 & 4: 84 years | |
| Premium Payment Term | Single Pay | 1 year | |
| Regular / Limited Pay | 5 years | 12 years | |
| Deferment Period | Single Pay | 1 year | 10 years |
| Regular Pay | Equal to Premium Payment Term | ||
| Limited Pay | Premium Payment Term + 1-year | Premium Payment Term + 5 years | |
| Annuity Amount | Yearly in arrears: Rs. 12 (in ‘000s) Yearly in advance: Rs. 12 (in ‘000s) Half Yearly in arrears: Rs. 6 (in ‘000s) Quarterly in arrears: Rs. 3 (in ‘000s) Monthly in arrears: Rs. 1 (in ‘000s) | No limit | |
| Purchase Price | Corresponding to the minimum annuity amount above | As per the maximum annuity chosen | |
| Group size | 5 | No limit | |
| Premium Paying Modes | Single, Annual, Half-Yearly, Quarterly, and Monthly | ||
Plan Options 1 and 2 are available under the Single Pay & Single Life and Joint Life basis Plan.
Options 3 and 4 are available under the Single, Limited, and Regular Pay & Single Life and Joint Life basis Plan.
Let us look at the Annuity payment, Death benefit & Guaranteed Addition under each option;
An annuity shall be paid till the annuitant(s) is/are alive. There is no death benefit payable under this option. Annuity payments commence immediately as per the frequency chosen. There is no Guaranteed addition under this option.
An annuity is paid till the annuitant(s) is/are alive and annuity payments commence immediately as per the frequency chosen. The death benefit is the Total Premiums Paid to date. There is no Guaranteed addition under this option.
An annuity is paid till the annuitant(s) is/are alive and annuity payments commence post the end of the Deferment Period as per the frequency chosen.
Death benefit payable within Deferment Period:
Death Benefit is higher of –
Total Premiums Paid up to date of death + Accrued Guaranteed Additions
105% of the Total Premiums Paid up to the date of death.
Death benefit payable Post Deferment Period:
Total Premiums Paid (excluding loading for modal premiums) up to date of death + Max (Accrued Guaranteed Additions − Total Annuity pay-outs till the date of death, 0).
Guaranteed Addition:
GA-I = 1/12th of the Yearly Annuity amount
An annuity is paid till the annuitant(s) is/are alive and annuity payments commence post the end of the Deferment Period as per the frequency chosen.
Death benefit payable within Deferment Period:
Death Benefit is higher of –
Total Premiums Paid up to date of death + Accrued Guaranteed Additions
105% of Total Premiums Paid up to the date of death
Death benefit payable Post Deferment Period:
Total Premiums Paid (excluding loading for modal premiums) up to date of death + Max (Accrued Guaranteed Additions − Total Annuity pay-outs till the date of death, 0)
Guaranteed Addition
GA-II = 1/12th of 6% of Total Premiums Paid
There is no Maturity benefit under this plan. The death benefit under Single Life is payable on the death of the annuitant & for Joint Life, it is payable on later of the death of the two annuitants.
Grace period:
This plan has a grace period of 30 days for yearly, half-yearly, and quarterly frequencies from the premium due date. The grace period for the monthly frequency is 15 days from the premium due date.
Revival Period:
If a premium is in default beyond the Grace Period and subject to the Policy not having been surrendered, it may be reinstated/revived, within five years after the due date of the first unpaid premium and before the end of the deferment period.
Paid up Benefit:
If you have not paid at least two (2) full years of Premiums, the Policy will be converted to a lapsed Policy at the end of the grace period, and no benefit will be payable.
If you have paid at least two (2) full-year Premiums, and subsequent Premiums have not been paid, your Policy will be converted to a Paid-up Policy at the end of the grace period and the Annuity amount will be converted to Paid-up Annuity.
Paid-up Annuity = (t/n) * Original Annuity Amount
Where “t” is the total period for which premiums have already been paid “n” is the maximum period for which premiums were originally payable.
If the Annuitant is not satisfied with the terms & conditions/ features of the Tata AIA Fortune Guarantee Pension Policy, he/she has the right to cancel the Policy within 15 days of receiving the Policy Document. The said period of 15 days shall stand extended to 30 days if the policy is sourced through electronic or distance marketing mode.
No surrender benefit is applicable for Option 1.
For Single Pay: The policy acquires surrender value at any time after Policy Commencement Date.
For Regular / Limited Pay: The policy acquires surrender value provided at least 2 full years’ premiums have been paid.
For further details, you can refer to the Tata AIA Fortune Guarantee Pension Policy Brochure.
When it comes to retirement planning, utmost care should be given during the accumulation phase as well as the disbursement period.
For an Immediate annuity, there is only the disbursement phase & there are both phases under the Deferred Annuity.
Tata AIA Fortune Guarantee Pension has both variants with the return of purchase price & without the return of purchase price.
Let us analyze the cash flow under each variant & figure out the internal rate of return of the Tata AIA Fortune Guarantee Pension Plan. This will help you to estimate how far it is beneficial to you in the long run.
The Assumptions for Comparison:
Option 1:
Age at Entry: 60 years
Premium Payment Term: Single Pay – Rs. 25 Lakhs
Annuity Payment Frequency: Annual
Return of Purchase Price: Nil
Option 2:
Age at Entry: 60 years
Premium Payment Term: Single Pay – Rs. 25 Lakhs
Annuity Payment Frequency: Annual
Return of Purchase Price: At Maturity/Death
Option 4:
Age at Entry: 60 years
Premium Payment Term: 5 years
Deferment Period: 5 years
Annual Premium: Rs. 1 Lakh
Annuity Payment Frequency: Annual
Return of Purchase Price: At Maturity/Death
Let us look at the IRR calculations of all the options in the below table;
| Age | Option 1 Immediate Life Annuity | Option 2 Immediate Life Annuity with Return of Purchase Price | Option 4 Deferred Life Annuity (GA-II) with Return of Purchase Price |
|---|---|---|---|
| 60 | -25,00,000 | -25,00,000 | -1,00,000 |
| 61 | 2,00,550 | 1,54,550 | -1,00,000 |
| 62 | 2,00,550 | 1,54,550 | -1,00,000 |
| 63 | 2,00,550 | 1,54,550 | -1,00,000 |
| 64 | 2,00,550 | 1,54,550 | -1,00,000 |
| 65 | 2,00,550 | 1,54,550 | – |
| 66 | 2,00,550 | 1,54,550 | 38,350 |
| 67 | 2,00,550 | 1,54,550 | 38,350 |
| 68 | 2,00,550 | 1,54,550 | 38,350 |
| 69 | 2,00,550 | 1,54,550 | 38,350 |
| 70 | 2,00,550 | 1,54,550 | 38,350 |
| 71 | 2,00,550 | 1,54,550 | 38,350 |
| 72 | 2,00,550 | 1,54,550 | 38,350 |
| 73 | 2,00,550 | 1,54,550 | 38,350 |
| 74 | 2,00,550 | 1,54,550 | 38,350 |
| 75 | 2,00,550 | 1,54,550 | 38,350 |
| 76 | 2,00,550 | 1,54,550 | 38,350 |
| 77 | 2,00,550 | 1,54,550 | 38,350 |
| 78 | 2,00,550 | 1,54,550 | 38,350 |
| 79 | 2,00,550 | 1,54,550 | 38,350 |
| 80 | – | 25,00,000 | 5,00,000 |
| IRR | 4.62% | 6.01% | 5.54% |
We have worked out the IRR for the given variants. By inferring the table, it is clear that if the return of purchase price is not chosen, then the annual annuity amount will be high.
By analyzing the various option, it is evident that the annuity rate is between 4.6% & 6%. This rate is below the inflation rate.
Considering the inflation during the post-retirement period & also the rising medical expenses, investing your hard-earned money at this level of low yield wouldn’t be beneficial in the long run.
Even the bank FD interest rate for senior citizens is better than the Tata AIA Fortune Guarantee Pension Plan’s return in the long run. Also, there is no liquidity, the funds get locked once the plan is purchased.
Now we can compare the Tata AIA Fortune Guarantee Pension Plan with other investments where you get regular income. For regular cash flow, you can opt for;
Fixed Deposits: FDs are a low-risk investment option where the investor deposits a lump sum amount for a fixed period and receives regular interest payments on the investment. The interest rate offered on FDs is fixed at the time of investment, and the investor knows the exact amount of interest they will earn. The interest earned is taxable (Exempt up to Rs. 50000 for Senior citizens).
Systematic Withdrawal Plan (SWP): Through SWP, you can withdraw money at regular intervals from the initial investment made in the Mutual fund scheme. Debt Mutual funds are generally advisable for SWP. Debt mutual funds returns are taxable as per the investor’s tax slab. Debt mutual funds offer higher returns than FDs, but they are not as safe as FDs.
You can refer to the following table for other risk-free investments similar to Tata AIA Fortune Guarantee Pension.
| PMVVY | SCSS | RBI floating rate Bond | |
|---|---|---|---|
| Interest Rate (As on Feb 2023) | 7.4% | 8% | 7.35% |
| Tenure | 10 years | 5 years | 7 years |
| Frequency of Pay-out | Yearly, half-yearly, quarterly, monthly | Quarterly | Half-yearly |
| Maximum Investment Amount | Rs. 15 Lakhs | Rs. 30 Lakhs | No Limit |
| Taxation | Fully Taxable | Exempt up to Rs. 50 K as Per Sec 80 TTB | Fully Taxable |
| Premature Withdrawal | Allowed | Allowed | Allowed (For Senior citizens) |
| Return on the Purchase price (Investment Amount) | Returned at the end of Tenure | ||
The above products also offer fixed income. From a returns & liquidity perspective, they are superior to the Tata AIA Fortune Guarantee Pension Plan.
Tata AIA Fortune Guarantee Pension Plan provides a guaranteed regular income for the lifetime of the investor but offers lower returns compared to other investments.
In addition to that, annuities are perpetual. Thereby, the funds get locked at the prevailing interest rate. On the other hand, the cost of living & medical expenses is towering. It is difficult to cope with inflation in old age.
Divide your retirement corpus into different buckets or portfolios, each with a specific time horizon and risk profile. You can diversify your investment portfolio. The primary objective of the diversification strategy is to ensure a steady and reliable stream of income at the same time to provide growth opportunities to maintain the purchasing power of the retirement corpus over time.
By investing your retirement corpus as stated above, you can very well earn an inflation-adjusted income year after year.
Carefully consider the risks and returns of each investment option before making a decision or consult your Financial Advisor to avoid any pitfalls.
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