Last Updated on October 1, 2023 at 9:23 pm
ICICI Prudential Insurance has introduced a Single-Premium Annuity Plan called ICICI Pru Guaranteed Pension Plan. In this review, let us analyse its features, merits and demerits and evaluate if the plan has any value to offer. What Is It? ICICI Pru Guaranteed Pension Plan is a “Non-linked Non-participating Individual Annuity Plan”
About the author: Ragesh G R is a Software Architect with 13 years of experience. His interests are computers, personal finance, cars, technology, maths and music. He helps his friends and family with their personal finance. Also, he actively guides physically challenged people all over India with buying and registering cars and procuring driving license via his blog at Ragesh in Full Throttle! Check out his other articles: (1) Financial Considerations and optimisations while buying a car; (2) What you need to know before buying term Insurance; (3) Used Car vs New Car: Which is a better buy?
What does it offer? A Single-Premium Annuity Pension Plan. You pay a Single Premium as lump-sum to the insurer. They provide you with a regular annuity for life. It has the following options to choose from:
Immediate Annuity Options
In this option, you start receiving the annuity immediately after you pay the premium. This has further sub-categories.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
- Single Life: Annuity is paid till the life of the insured. It has the following sub-options:
- Without Return of Purchase price: Upon your death, the policy terminates.
- With Return of Purchase price: Upon your death, the purchase price is returned to the nominee and policy is terminated.
- Critical Illness and Permanent disability rider. You have the option of getting back the purchase price upon the occurrence of any of the 7 CI’s or PD before the age of 80.
- Age-based riders. You have the option of getting back:
- The full purchase at 80, or,
- Half the purchase price at 80, or,
- 5% of the purchase price every year for 20 years from age 76 to 95
- Joint Life: Annuity is paid as long as either of the Annuitants (typically you and your spouse) are alive. This option also has the choice of choosing to return the purchase price to the nominee upon the death of both annuitants.
Deferred Annuity Options
In this option, you can choose to start receiving a pension at a later stage, 1 to 10 years after purchasing the annuity. But you can lock-in the current interest rates.
This has the following sub-categories:
- Single Life
- Joint Life
Both the above options offer the following death benefits
Death Benefit during the deferment period which is higher of:
- Purchase Price + Accrued Guaranteed Additions
- 105% of Purchase Price
Death Benefit post the deferment period which is higher of:
- Purchase Price + Accrued Guaranteed Additions – Total annuity paid out till date of intimation of death
- Purchase Price
Here too, you have the Critical Illness and Permanent Disability riders.
How does it work? We will first look at what it looks like, at face value and then we will delve deep into what it actually is in its crux. Let us understand the workings of this policy with a few examples.
Example: A 55-year-old male purchases this policy.
Policy Type: Deferred Single Life with Return of Purchase Price
Deferment Period: 1 year
Annuity Frequency: Monthly
One-time Premium : 1,00,00,000 (1 Crore)
Annuity Payout per month: Rs. 52,327
Total Annuity Paid out per year: Rs. 6,27,924
You will receive this annuity monthly as long as you are alive. When you pass away, your nominee will get the purchase price back. The snapshot is given below.
Analysis: At the outset, it looks like you will receive a payout of 6,27,924 on a 1 Crore so that comes to around 6.3% return which is really good. However, you need to apply 1.8% GST to the premium so your returns will drop to 6.16%. This is still really good in this day and age. You need to pay tax on the annuity, the income is taxable as per your slab. So you will have to pay Rs 28,085 tax on this. So your post-tax income is 599839 ~ 6 Lacs.
So our post-tax returns will become 5.89% this is about 0.4-0.5% higher for the corresponding option and age group that the return given by LIC’s Jeevan Akshay – VII (Plan No. 857, UIN: 512N337V01)
This is a respectable return for the current interest rate situation for a deferment period of one year where the money value of time can be ignored. If the deferment period is longer, then the delay between premium payment and annuity payment will decrease returns significantly. Do not take the “lock-in pension at current rates” sales pitch at face value. See further examples: Why Time is Money and How Life Insurance Plans Exploit it!
For example, although the pension itself is at an effective post-tax rate of 5.89% of the premium paid, if the payout is for 30Y with one-year deferment, the effective IRR at the end of the 30Y period is 3.84% (this IRR has no practical relevance to the retiree but is used just to illustrate the money value of time). Increase the deferment to five years, the IRR drops to 2.98%.
Another way of saying this is, by paying the insurer a lump sum to get a future pension at current rates, we are sacrificing the opportunity to get better returns in the intervening period. Therefore it is important to ensure the deferment period is as low as possible, preferably zero (immediate annuity).
What potential buyers need to know
Although the interest payout is reasonable, the buyer will have to keep these additional factors in mind:
- This provides static annuity with no option to increase the annuity as time passes. So in real terms, inflation will take away the value of the money, and each year, your real income keeps on reducing. So you will need some other parallel investment to fortify the income to take care of inflation. You can use this annuity plan only for income flooring. See: Creating the “ideal” retirement plan with income flooring!
- Annuity income is completely taxed as per slab.
- Alternative pension sources (as one component of a retirement portfolio):
- GOI bonds obtained via NSEgobid is an option to get 30,40-year interest payout as a pension, but this depends on individual on yields, the bid price and allotted price.
- PM Vaya Vandana Yojana which offers 7.66% pre-tax interest for ten years with a maximum investment amount of Rs. 15 lakh.
- Senior Citizens Savings Scheme (30 lakh max investment for a couple) with max eight-year tenure; the rate can be locked in upon purchase but depend on the time of purchase (decided each quarter)
Also, see: Building the ideal retirement portfolio that goes beyond money
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)