When you visualise retirement, you want to see it is a comfortable phase of your life where you have the income to sustain for the remainder of your life. The biggest cause of concern is that you might run out of savings.
The income you enjoy during retirement has a direct correlation with the kind of savings and investments made by you prior to retirement i.e. during your income phase. The most important fact is that you need stability in income which does not get affected by the volatility of stock market.
You would need a pension plan that ensures you have a guaranteed corpus when you retire which provides you with a regular monthly income. HDFC Life Guaranteed Pension Plan is a deferred pension plan which is non-participating (it does not participate in the profits of the company). You get an assured vesting benefit and your nominee gets an assured death benefit. The policy comes with guaranteed additions and vesting additions. It provides you with guaranteed returns on the retirement corpus invested by you.
The reason it is known as deferred annuity is that you don't get the annuity pay outs immediately, but only after completion of the policy term and payment of all premiums.
The important features of HDFC Life Guaranteed Pension Plan are mentioned below:
Guaranteed Additions - Guaranteed additions at the rate of 3% of the sum assured will accrue to your policy on every completed year of the policy. This means that if your policy duration is 10 years, then your guaranteed addition is 30% (10 x 3%). These guaranteed additions will be added to your sum assured on the date of vesting. Of course, you need to remember that these benefits will accrue to you, provided you have paid all the premiums due according to your premium paying term.
Vesting Addition - In addition to guaranteed additions, you are also entitled to vesting addition under the HDFC Life Guaranteed Pension Plan. The vesting addition is a percentage of the sum assured and is payable as a lump sum on the date of vesting.
Premium Paying Term - As far as the HDFC Life Guaranteed Pension Plan is concerned, you have the premium paying term and the policy term. Both of these are different. While the premium paying term offers you three term options, namely 5 years, 7 years, and 10 years, the policy term ranges from 10 years to 20 years.
Death Benefit - The policy offers a guaranteed death benefit where your nominee gets the premiums paid along with interest compounded at 6% per year.
There are numerous benefits that the HDFC Life Guaranteed Pension Plan provides. These are:
For every policy year completed, there will be a guaranteed additions of 3% on vesting. Vesting means your retirement age.
In the unfortunate event of your death, your nominee would receive the Assured Death Benefit which would include the total premiums paid to date. There would be compound interest given on these premiums at the rate of 6%. The minimum death benefit payable to your nominee would be 105% of the total premiums paid.
Your nominee has the option to either use the death benefit to purchase an immediate annuity from HDFC Life or can withdraw the entire death benefit as a lump sum amount.
The 6% guaranteed rate on premiums is payable on for death benefit and has nothing to do with vesting benefit.
Premiums paid for life insurance policies are eligible for deductions under Section 80CCC of the Income Tax Act, up to Rs. 1.5 lakhs. You can choose to take 1/3 of the vested amount as a tax-free commuted value under Section 10(10A) of the Income Tax Act, 1961. In case of an annuity plan like HDFC Life Guaranteed Pension Plan, you can either use the entire vesting amount towards an annuity from HDFC Life or you can commute part of proceeds by withdrawing it immediately.
Vesting addition depends on the policy terms as illustrated below:
| Policy Term (Years) | Vesting Addition (% of sum assured) | Policy Term (Years) | Vesting Addition (% of sum assured) |
|---|---|---|---|
| 10 | 30 | 16 | 48 |
| 11 | 33 | 17 | 51 |
| 12 | 36 | 18 | 54 |
| 13 | 39 | 19 | 57 |
| 14 | 42 | 20 | 60 |
| 15 | 45 |
So, if you have a sum assured of Rs. 2 lakhs, then for a 10-year policy term your vesting addition will be Rs. 60,000/-. So, on the date of vesting (when you start receiving your pension), your sum assured would be Rs. 2.6 lakhs. If you go for a 20-year policy, then your vesting addition will be 60% of your sum assured or Rs. 1.2 lakhs. Hence, on the date of vesting, your sum assured will be Rs. 3.2 lakhs.
If you survive till the date of vesting of the policy or when you are eligible to receive monthly pension, you will be entitled to the sum assured mentioned in the policy on the date of vesting plus guaranteed additions at 3% for every completed year of the policy term, as well as vesting addition. These benefits will accrue to you provided you have paid all the premiums due under the policy.
If you do not wish to continue the policy till the end of the term, you have the option of surrendering it to HDFC Life within the policy term and receiving a surrender value. The surrender value will depend on the year in which you wish to surrender the policy and the premium paying term (PPT) of the policy. The surrender value is calculated as a percentage of premiums paid. There is a Guaranteed Surrender Value (GSV) that accrues from the guaranteed additions under the policy. If the market conditions are favourable, then the company might also offer a higher surrender value by way of a Special Surrender Value (SSV).
The percentage of premiums paid for Guaranteed Surrender Value are given in the table below:
% of premiums paid for GSV calculation
| Policy Year | PPT of 5 years and 7 years | PPT of 10 years |
|---|---|---|
| 2 | 30% | NA |
| 3 | 30% | 30% |
| 4 to 7 | 50% | 50% |
| Last 2 years | 90% | 90% |
So, if you surrender the policy in the second year, 30% of the premiums paid will be taken for calculating the Guaranteed Surrender Value and if the policy is surrendered in the last 2 years, 90% of the premiums paid will be considered for calculating the Guaranteed Surrender Value.
| Minimum | Maximum | |
|---|---|---|
| Entry Age (last birthday) | 35 years | 65 years |
| Vesting Age (last birthday) | 55 years | 75 years |
| Policy Term (years) | 10 | 20 |
| Premium Payment Term (years) | 5/7/10 | |
| Yearly Premium | 24000 | No limit |
| Premium Payment Frequency | Monthly, quarterly | half yearly, yearly |
Is HDFC Pension Plan good?
The HDFC Pension Plan is a deferred annuity plan that offers guaranteed additions as well as vesting additions over and above the sum assured on the day of vesting.
There are two phases in your life, one is the accumulation phase (pre-retirement) and the other is distribution phase (post retirement). When you are nearing retirement, it would be advisable to invest in a product that ensures safety of your principal and provides stable returns post retirement.
In this regard, the HDFC Life guaranteed pension plan is a good choice if you are looking for stable income post retirement. There is a lot of flexibility in terms of premium paying terms. You can choose between the 5-year, 7-year, or 10-year premium paying terms.
You can choose the policy period after discussing with the financial advisor from HDFC Life about your requirements post retirement, and determine the monthly income that you would need. The policy period varies from 10 years to 20 years.
So, as far as a pension product is concerned, HDFC Life Guaranteed Pension Plan would suit you if you are looking for stable post retirement income and trying to avoid the stock market volatility, which could not only reduce your retirement corpus, but also destabilize your retirement plans.
Are private company employees eligible for pension?
Yes, there is no bar for employees from private companies to invest in pension policies. They can also invest in HDFC Life Guaranteed Pension Plan and look forward to a comfortable life post retirement with the monthly pension they get from it. The private sector employees can determine the superannuation benefits (benefits provided on retirement like provident fund and gratuity) that they are entitled to and then calculate how much they need to invest in HDFC Life Guaranteed Pension Plan to ensure that they have a stable income post retirement. They will get tax benefits under Section 80CCC of the Income Tax Act, 1961 for the premiums paid and tax-free commutation benefits under Section 10(10A) of the Income Tax Act, 1961. So, private sector employees are eligible for pension from HDFC Life Guaranteed Pension Plan.
Make Your Retirement Dream Come True with HDFC Life
The guaranteed pension plan from HDFC Life is a non-linked, non-participating traditional plan. Being non-linked, the final payout is not affected by the volatility of the stock market, which is a very important fact, since you would not like to see your retirement corpus erode. The monthly income that you get as an annuity is unaffected by interest rate changes. You can plan your expenses, since you know that your income is constant.
There are various options with regard to premium paying terms and policy periods, giving you the freedom of choosing a premium paying term and policy period that is best suited for you.
You have the choice of either committing a part of the vesting benefit, or using it entirely for your annuity. Go with HDFC Life Guaranteed Pension Plan for a peaceful retired life.
