Pension plan queries and discussion

[nRiTeCh]

I'm yet to make a concrete investment which will help my family during retirement period. Maybe I might be the last one out here lagging far behind, but I do not want to delay anymore.

Every month, I keep getting calls from banks and insurance firms regarding such retirement benefit plans.

The opposite person, though claims is calling from the head branch and patiently explains everything on the phone taking my 1+hr of time, is ready to arrange an executive at my place for f2f discussion on the plans and formalities etc. before opting for and the documents will be shared on mail and physically via courier.

But I'm very skeptical to such online things esp. investing lacs believing someone and also hardly find the time to walk physically into the branch and inquire and apply.

Finally found time to discuss here.

One such plan I would like to share which just yesterday I heard from one such insurance co.
Its some non link non participating traditional plan.

Spoiler: Plan

Here, one can invest min 20k but assuming 1lac here as they took it as an example.

One needs to invest 1lac per yr for a period of 12yrs and thereafter you get 2 options: (Investment is done only in govt. bonds)

1] Upon maturity at 12yrs i.e. 144 months, in the 145th month, the invested amount matures to 27lacs, and I can take it home.
2] Triple lifetime pension plan- Get 3.10 lac less 2% tds from 13th year till my death then wife as well be getting the same amount yearly & after her death lumsum one time payment will be done to my kid whcih is 27lacs.

Also, while paying the premium, if death happens say at 4th year or any year before 12th yr, the investment amount for those years plus the premium earned during such period will be paid to my nominee lumsum.

Same plans every bank is having, and I find these worthy but better to discuss before plunging in.

Yet before making a big decision I wanted the advice of investment experts here or anyone who has invested in such or similar plans if I shall go for it or are there better plans available on the same line.

 

[kiran6680]

The "pension plans" have such complex rules and schedules to hide the fact that actual return on investment is quite low. Whenever anyone is complicating the story - you pay X for Y years, then in Z years you get Rs W, and in V years you get Rs U : they are mainly doing it to confuse the customer. Ideally it should be put money whenever you want, take out money whenever you want, end of story. Then they can't hide the rate of return.

Calculate the return on investment. Mostly if any plan is guaranteeing returns, they must invest in debt, which means return is very low. Especially 27L after 145 months will be pocket change.

I would say mutual fund in equity, and NPS are the two vehicles that give us a reasonable chance at a reasonable return rate without complicating the situation needlessly. If you still want debt, upto a certain limit EPF, PPF are much better tax, return and transparency wise than these "retirement" plans.

 

[OnlyConsultant]

Do NPS Pensions keep up with Inflation or Cost of Living Increase?

Otherwise- Max benefit would be 61st year and would keep on decreasing till ....

 

[avanildutta]

1) Use nps calculator and check how much sip you need to do to get ur desired retirement corpus in 60/40 ratio.(5k per month)

2) Do a 15 yrs ppf in any nationalised bank(5k per month)

3) Sip small amount every month in small/mid/large cap funds (6k/month)

4) Last if at all you have slight knowledge or can gain some which is easily available if you search at the right place with the help of google.. pick some good blue chip stocks whenever market goes down beyond expected (like nifty down 2-5% back to back), accumate good stocks only when they fall, if they even fall further keep adding. (Max 20k invest in 1 day.. max no limit. But if newbie start with 5k)

Lastly diversify funds in every. Atleast 1/2 from above if not all will help to reach where you want to.

I am no expert but have been doing that from past few years and it's better than not doing or relying on a 3rd person be it the Sebi head.

Last best advice/tip.. Don't listen/ask or take every free ka tips. Forget paid. Even if he is God.

**Except this forum members comments. I am sure old reputed members can guide you pretty better.

Just stay out of those bank calls, company offers, this that calls whom you didn't know before the call and they called only to sell you their plans. Sounds so good but actual scenerio if you go deep down it's equates to same. And nominee facility is in all the 4 plans stated. Best part if you put the habit of only depositing and not withdrawing no matter what you are set after 60.
But pls step up your investment amounts bit by bit.. year on year basis.

 

[gourav]

I would recommend going with NPS. You can register directly and save some cost of middleman.

You will have 2 main decisions to take
1. Fund manager
2. Asset allocation

Fund manager
You can select any of the bigger fund houses like HDFC, KOTAK, SBI, etc. While their performance may differ in the short run, there is no way to predict which one will do best in the next 20-30 years. So don't fret too much about. Safe to say all of these will give decent performance. Avoid LIC as their performance has been shit in general and their investment decisions are also influenced by government's priorities and are not always in the best interest of the investors.

Asset Allocation
I don't know your age, but generally, allocate as much to equity as you can. If your time frame is more than 10 years, then it makes sense to have most in equity.
As you cross the age of 50, start gradually shifting to debt such that less than 30% of your allocation is in equity by the time you're 60.

The most important thing is discipline. You need to invest regularly and stay with it. A lot more people have lost money due to lack of discipline than due to market crashes.

Keep investing regularly and you'll build a good corpus by the time you're 60.

 

[nRiTeCh]

The "pension plans" have such complex rules and schedules to hide the fact that actual return on investment is quite low.

They are giving this is writing and not just they, even banks as well have 99% same plans except differing in the year pattern.

Whenever anyone is complicating the story - you pay X for Y years, then in Z years you get Rs W, and in V years you get Rs U : they are mainly doing it to confuse the customer.

They didn't complicated anything at all, its was as simple as 123.

Ideally it should be put money whenever you want, take out money whenever you want, end of story. Then they can't hide the rate of return.

I already mentioned, that's what they said. Anytime out, flexible Non charges levied.

Calculate the return on investment. Mostly if any plan is guaranteeing returns, they must invest in debt, which means return is very low. Especially 27L after 145 months will be pocket change.

They are only investing in govt. bonds can recall the name though unlike others who invest in the market.

I would say mutual fund in equity, and NPS are the two vehicles that give us a reasonable chance at a reasonable return rate without complicating the situation needlessly. If you still want debt, upto a certain limit EPF, PPF are much better tax, return and transparency wise than these "retirement" plans.

PPF/NPS is on the cards..

 

[kiran6680]

They didn't complicated anything at all, its was as simple as 123.

Ok, in your original post there was a long, complicated plan that had to be hidden under spoiler tag. So was it

1. any time you put in money, any time you take out money?
2. or the long thing you mentioned ?


One of them is simple, the other is not. Other institutions like bank etc. are also confusing customers because they don't want to give one simple fact : what is the rate of return? Did they tell it to you? I might have missed it in your posts.

 

[nRiTeCh]

Ok, in your original post there was a long, complicated plan that had to be hidden under spoiler tag. So was it

1. any time you put in money, any time you take out money?

Yes

2. or the long thing you mentioned ?

Its the maturity period..12yrs. Better if this gets completed.

One of them is simple, the other is not. Other institutions like bank etc. are also confusing customers because they don't want to give one simple fact : what is the rate of return? Did they tell it to you? I might have missed it in your posts.

I have a scheduled appointment with their sales executive next week so will definitely ask this.

But the last time I did asked the bank they didn't mentioned on any such ROR, the promised returns is what they give in writing and is what one gets.

 

[raksrules]

@nRiTeCh

I am 40 years old and only earning member of my family. I have tried to make sure of 2 things..

• What if I die tomorrow?
• What if somehow I end up living till 100 (As in long enough)?

Back in 2019, I was a big dumbo when it came to investments and savings. I mean, I was saving money and earning well too as I was in US (no longer there) but how to invest was I did not know and my dad would handle this. BIG MISTAKE!! He F***ed with my money in terms of investment. He did equivalent of what today some people do, just listen to a tip or some "relative" telling about some scheme and investing. Do not come in "chikni chupdi baatein" of any "relative". No one and I mean no one is looking out for you, you are on your own. They are only peddling this for their commission. My dad at one point took 5 LIC Policies for my brother. Imagine that. 2 of them maturing in freaking 2050. I am like seriously? I shut down each of them and we incurred loss (surrender value was obviously less but thankfully we hadn't paid much premiums).

Please do not go with these, pay for X years and get guaranteed Y amount per month / year after that and such for your pension. Invest in instruments that provide money which you can consider as your pension without depending on any company.

I will tell you to start PPF soon if you haven't already. Not sure of your age but I started mine when I was 35 which I consider very late to do it. My dad never imparted me any investment knowledge and now I know why as he himself just pretends to understand all that but doesn't. I self learned everything and started investing my money. PPF although in terms of interest rate is not lucrative as it is 7.1% only, good part is that it is EEE (3x exempt). Just that you need to consider the lock in period of 15 years. But at least your money gets compounded.

Please understand that there is nothing called compounding in mutual fund. Anyone saying otherwise is lying. Because in mutual fund, you have X units you bought at Y price. Now price per unit can go up or down. No compounding happens like in PPF or PF or FD.

I also invest in PF through my employer and do some VPF contribution too. I do this because it is also tax exempt on withdrawal at retirement and if I don't withdraw, I can still earn 8.1% interest (As of current rate). So consider that somehow at retirement, I have 30L in my PF account, at 8.1% (Assuming same rate), it means I add 2.4L per year to that and then next year calculation is on 32.4L and so on.

Personally, I think that PPF and PF once redeemed after retirement and put in fixed safe instruments like FD (hoping for ok interest rate) should be good for monthly expenses and such.

Obviously these are not my only instruments and one should definitely invest in equity. I don't do much direct shares and usually use mutual funds expecting better appreciation of my capital.

Do not invest in LIC policies or endowment polices (pay for X years, wait for Y years after X years and then get back whatever maturity value is types). Please do due deligence and do not fall for any agents and even your relatives who are actually agents only. Make yourself aware first.

Get term insurance if you haven't yet, for your family's wellbeing / future.

 

[kiran6680]

I have a scheduled appointment with their sales executive next week so will definitely ask this.

But the last time I did asked the bank they didn't mentioned on any such ROR, the promised returns is what they give in writing and is what one get

I don't understand how it can be as simple as 123 when after so much discussion the only important thing is left unsaid: the RoR. Though the RoR can be computed from the "plan" you gave.

 

[saidu]

Please keep the following things in mind:

1. The taxation policy on the return of NPS tier 2 account is not defined yet. When the Govt defines it, if they take it like it is as good as your income, tax liability will be high.
2. Please be advised that if your NPS + SuperAnnuation + PF + VPF is above certain threshold ( I think 7.5L), the investment and returns are taxable. So, please do your investment within these caps.
3. Generally if someone is not so good in finance, people keep investing in index funds with the hope that overall market goes up. Funds such as UTI NIFTY 50 has low administration cost.
4. If you have some bulk amount to invest on a pension front, even RBI bonds are good options. At this point of time, they return 7.25% for next 30-40 yerars. You can buy them directly from rbi-direct.in

My 2 cents.

 

[kiranrss]

Woudl suggest maximising the PPF investment in all the family members name. this is at the moment one of the best compunding investmenst you do with compunding gains across years.

 

[raksrules]

2. Please be advised that if your NPS + SuperAnnuation + PF + VPF is above certain threshold ( I think 7.5L), the investment and returns are taxable. So, please do your investment within these caps.

Can you explain this more? I hope you meant contribution per year and not "investment". Because they cannot tax total portfolio if it is more than 7.5L else no one would put money in these.

 

[saidu]

Can you explain this more? I hope you meant contribution per year and not "investment". Because they cannot tax total portfolio if it is more than 7.5L else no one would put money in these.

My apologies for the confusion. Yes, by investment, I mean contribution for that year.

For example, if you contribute 12.5L in a single year, the following happens
a. 12.5-7.5 = 5L becomes fully taxable.
b. This 5L is accumulated in a different account(Especially in PF). The gain you get from this 5L on subsequent years are treated as income.

Hope it is clear

PS: The biggest headache is that there is NO mechanism to automate it at this point of time. It is computed manually in an excel sheet by employee so far(Last three years) and submitted to Payroll department

 

[raksrules]

My apologies for the confusion. Yes, by investment, I mean contribution for that year.

For example, if you contribute 12.5L in a single year, the following happens
a. 12.5-7.5 = 5L becomes fully taxable.
b. This 5L is accumulated in a different account(Especially in PF). The gain you get from this 5L on subsequent years are treated as income.

Hope it is clear

PS: The biggest headache is that there is mechanism to automate it at this point of time. It is computed manually in an excel sheet by employee so far(Last three years) and submitted to Payroll department

Ok. I contribute PF and VPF both and I know the limit is 2.5L per year to make sure we stay below threshold. I am making sure that my PF+VPF (excluding employer PF contribution) stays within this limit.

 

[nRiTeCh]

An update.. I just now opened an NPS via my employer as they were conducting account opening since last week.
And its the usual 10% of basic and unsure if employer is goign to contribute from his end like EPF.
But spoke to the relationship manager and she said I can externally/by-self/separately as well contribute to NPS as much as I want but tax benefit is only 50k (fine for me)

So how many of you are only sticking to the 10% basic rule or are contributing by separately as well?

And, I already have an EPF so is it necessary to again get another PPF opened>

 

[raksrules]

I am sticking to 10% of basic as I anyways invest in equity through mutual funds so why to divert here more as NPS is not guaranteed investment like EPF / VPF / PPF. Also the 40% annuity is what puts many people off and I understand why. So yes, I do no voluntary contribution to NPS but I do it for VPF as I can compound my money better with VPF (and PPF too ofcourse).
But with my EPF + VPF (employee contribution), I stay under the 2.5L total contribution per year to avoid the taxation on interest earned for amount over 2.5L.

An update.. I just now opened an NPS via my employer as they were conducting account opening since last week.
And its the usual 10% of basic and unsure if employer is goign to contribute from his end like EPF.
But spoke to the relationship manager and she said I can externally/by-self/separately as well contribute to NPS as much as I want but tax benefit is only 50k (fine for me)

So how many of you are only sticking to the 10% basic rule or are contributing by separately as well?

And, I already have an EPF so is it necessary to again get another PPF opened>

 

[burntwingzZz]

PPF for 15 years .Deposit 1.5 lakh in the very first week of april so as to get full interest for 12 months .In compounding this makes a huge difference .Than near completion of 15 years .Before 1-2 months either you have an option to extend it for another 5 years or else tax free money will be deposited in your account.

NPS -NPS is great if you understand it well.

open NPS -tier 1 and invest 50K .Get 50k tax benefit over and above 80 c

If you are not the sole earning member and actually looking for investment avenues this than i would highly recommend even opting Deductions under Section 80CCD (2) (10% of Salary+DA) .The employer can directly deduct a set percentage from your basic .If you change organizations the same account could be transferred to other org as well.i am also trying to know whether we have an option to deposit money in Tier 2 account or it goes NPS tier -1 account If someone could help that would be grateful.

To open NPS - tier 2 account .AKA you would be taxed if you withdraw from it.

How do i use it
75% on equities ,15-G and 10% on C
if above is set than NPS-2 more or less behaves like an Index MF with less expense ratio.

What money is invested -the money which i feel which i don't require immediately . Or i can say SIP form of money.

Advantage -
Tier 2-gives higher interest rate than savings bank and FD ( worst case scenario 9-10% p.a) best case even better than MF if you could time the deposits.

-if you made profit and withdraw you will be taxed .
-After a year you feel the money in tier 2 is not required maybe immediately neither short term and could be used for long term investment .Transfer all of it to tier 1 account and avoid the taxes .
The interest is may be 1% less than tier 1 but it offers you liquidity. Acts as Hybrid mutual fund.

Above could cover your day to day life

But you should also have a fund wherein you start saving for your medical expenses . Post retirement hospitalization etc considering the inflation as well.

People also buy a Mediclaim separately apart from their current organizations also stupid LIC policies . Don`t do that .Get a top up if you feel the cover is less .Money of LIC /extra mediclaim could be placed

in small FD`s with continuous renewal. ( if fd interest rate merely beats inflation than its of no use)
in debt MF`s
in IINSS-C .The money that you deposit every year will be compounded (principal+interest ) till every year low returns but it will help you beat the inflationary prices post 60 years without the fear of money erosion.https://rbi.org.in/scripts/FAQView.aspx?Id=99

VPF.EPF are great options and NSC ( NSC is also great short term investment option compounded interest )

More suggestion and correction to above mentioned will be highly appreciated.

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