ICICI Pru Guaranteed Pension Plan Review: What you need to know

Published: December 27, 2020 at 11:21 am

Last Updated on December 29, 2021

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.


Build a complete financial plan with our Robo Advisory Tool. More than 1000 investors and financial advisors use it!
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)


New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
  • 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:
      1. The full purchase at 80, or, 
      2. Half the purchase price at 80, or,
      3. 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:

  1. Single Life
  2. Joint Life

Both the above options offer the following death benefits

Death Benefit during the deferment period which is higher of:

  1. Purchase Price + Accrued Guaranteed Additions
  2. 105% of Purchase Price

Death Benefit post the deferment period which is higher of:

  1. Purchase Price + Accrued Guaranteed Additions – Total annuity paid out till date of intimation of death
  2. 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.

ICICI Pru Guaranteed Pension Plan Annuity Calculation Screenshot
ICICI Pru Guaranteed Pension Plan Annuity Calculation Screenshot: Source: https://www.iciciprulife.com

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:

  1. 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!
  2. Annuity income is completely taxed as per slab.
  3. 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

Do share this article with your friends using the buttons below.

Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • 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.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr 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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or 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 for 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 3000 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 what 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 you 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!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
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 for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new 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 from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished 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 Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis 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

Travel-Training-Kit-Cover-new This is an in-depth dive analysis 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 199 (instant download)