Why LIC’s New Pension Plus Plan is NOT a Pension Plan

(This blog is my personal perspective of LIC’s New Pension Plus Plan with and Plan No.: 867 and UIN: 512L347V01)

One of the most important things that people want to be taken care of after they reach an age of 60+ is steady stream of income popularly known as “Pension” or “Annuity

The definition of Annuity is –

a fixed sum of money paid to someone each year, typically for the rest of their life.

In some ways, it is sort of a form of insurance or investment which entitles the investor to a series of annual sums.

So then why, are we saying that LIC New Pension Plus Plan, which has the mention of Pension in it, is not really a Pension Plan.

Well, this is due to the type of configuration of this plan.

You see that when we talk about various categories of Insurance related investment plans, there broadly are 3 categories –

  1. Non-Linked but Participating Plans
  2. Linked but Non-Participating Plans
  3. Non-Linked and Non-Participating Plans

Let’s first look at these 3 categories 1 by 1:

First are the Non-Linked, Participating Plans – These are plans where your returns are influenced by the bonuses that are declared by the insurance company. There are many types of bonuses declared by the company depending upon the type of plans that you have chosen. Since most of these bonuses are not-guaranteed, hence the amount you will be able to accumulate or receive from these plans are also not fixed.

The second category is Linked, Non-Participating Plans – These are plans which have their returns linked to Market related instruments (Equity as well as Bonds – This is important and we will cover it later in the video). It means that portion of your investment will be deployed in Market related instruments and thus your returns will be Market Linked, meaning again non-guaranteed returns. We are not even touching the various types of charges that one has to bear as part of these plans.

Which brings us to the last category i.e. Non-Linked, Non-Participating Plans – By now you would have understood that these are the type of plans, returns of which are neither linked to Market nor are influenced by various types of bonuses declared by the company – thus them being Guaranteed in nature.

Typical examples of these plans are Pure Risk Term Insurance Plans that offer nil returns, Guaranteed Returns Plans and Pension Plans.

Now, let’s have a look at how we typically plan for our retirement income.

We would start by saving or investing money in schemes that would help us get a big corpus of money created. The focus is to get maximum return on our investments so as to be able to get a bigger corpus because hey – Big Corpus = More Pension.

We also take into account the risk we are taking while making these investments. During our early years say between 25 to 45, most of our investments can be (and should be) in Equity as they tend to provide maximum returns. As we grow older and move towards our retirement age, the Equity exposure should be gradually decreased, and fixed income investments should be preferred. (This is exactly how the Auto Invest mode works in NPS)

But once we have this Corpus of money created, we ultimately want a steady income from the same for the rest of our lives and if possible, inflation adjusted (which is why Government Officials prefer OPS over NPS – anyways, that is a subject of another blog). Thus, this money is invested in a plan which enables that steady flow of income.

With all of this being clear, let’s revisit LIC New Pension Plus Plan.

As I have shared in many of my videos, it’s pretty easy to find the type of Insurance plan you have – by just taking a look at the first page of its brochure. In this case, you can see that LIC New Pension Plus Plan is a Unit Linked, Non-Participating Plan – which right away tells you that you are not going to get the certainty that you are looking for.

Going further to the Section 2, sub part 2 spills the beans that this really is a Pension enabler plan. Means this plan actually helps you build “the corpus” which you can then use to invest in a real Annuity plan and thus get a certain income from it.

As such, I would rather call it as LIC New Pension Enabler Plan.

So then, why would someone buy this plan? What is the USP?

For a starter, LIC is offering Guaranteed additions payable between 5% to 15.5% on regular premium, and up to 5% on single premium. This is to give people investing in Market related instruments some hope that there is a surety about their investments. Afterall that is what Guaranteed should mean. I must say here, this is a false hope if you understand how the whole concept of NAV’s and Units work and that all the Market related instruments – be it Equity or Bonds,

Secondly, it is being provided by an Insurance company and there is a bundled insurance product in it.

Thus, for any investments you make as part of this product, you will be able to avail tax benefits against the same. And as we know, Indians go crazy when it comes to Tax Savings.

Lastly, convincing power by our friendly LIC agents on this is indeed the right product for you.

If you would like me to review this plan in detail, leave a comment below.

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