How well have you planned for your post-retirement phase?

Present Indian economy is largely characterised by increasing share of unorganised employment. Even under organized sector a large share of population is employed in private enterprises, where, in the name of retirement benefits workers often receive only the mandatory Provident Fund and Gratuity, and there is no provision of pension for the employees. In public sector also, the government has moved away from the defined benefit pension scheme, which has survived for a long time, to defined contribution scheme, which may not be sufficient to cover the old age expenses in future.

Additionally, the life expectancy of an average Indian has increased by five years in last one decade, from 62.3 years for males and 63.9 years for females in 2001-2005 to 67.3 years and 69.6 years respectively in 2011-2015. Senior population in India i.e. aged 60 and above is 100 million as of 2011, which is the second largest elderly population in the world. Complicating the matter further, people are living longer but not necessarily healthier, which means a lot of old age expenses are being incurred on bearing the healthcare cost.

In view of the changing social mores, i.e. disintegration of joint families into nuclear families, growing urbanization and employment driven migration, it is important for the citizens to start planning for their old age in their early years.

Unlike developed nations such as the U.S. and the U.K., India has no national social security system to cover all the senior citizens of the country rather; it has a very fragmented pension system, which is neither universal in its coverage nor efficient in its distribution.

In most developed economies, a three tier pension system works to support senior citizens in their non-earning years of life. The first one is offered by the state run social security and pension benefit schemes. The second one is provided by pension system for people employed in organised sector through defined contribution or defined benefit schemes. And the third one is offered by voluntary pension schemes promoted by Life Insurers and Mutual Fund companies.

According to the World Bank, absolute increase in the elderly population between years 1996 to 2016 will be approximately of 100%, which means the elderly population will double in size during these two decades. Given the population-aging trend and inadequate support system available for the elderly citizens in the country, it is imperative to create an economic support system for the citizens of this country that allows them to live their old age years comfortably.

However, due to various reasons like unemployment, persistent poverty, low tax base and high tax evasion and limited social willingness to participate in a collective fund system, it is difficult for the government to take any immediate steps to create any publicly funded essential support system for the senior citizens. Hence, it is essential to expand individual pension coverage by promoting investment in reliable pension schemes offered by insurers.

In view of the changing social mores, i.e. disintegration of joint families into nuclear families, growing urbanization and employment driven migration, it is important for the citizens to start planning for their old age in their early years. In India, usually, people start to think about their post-retirement planning when they near the age of 50, but looking at the scenario facing us in the country, it is important to start early planning in this direction.

Individuals in the country need to make well directed efforts towards their financial planning and explore the opportunities to invest in such products that offer guaranteed returns for a long duration of time. The fluctuation of interest rates in the fixed income market and unpredictability in the capital market are undisputable facts of financial system in a growing economy.

In turbulent markets like India, it is hard to bet on any single financial instrument to deliver consistent expected returns for a long duration. Post-retirement planning in today’s time means a planning for around twenty non-earning years of old age and accurate prediction about the performance of stocks in the capital market for such a long duration is not a practically feasible prophecy for any financial analyst to make. However, what is feasible to anticipate with reasonably high probability is the broad trend of interest rates in growing economy over a long period.

Under assumption of high growth expectation in the Indian economy, as the country moves from being developing to become developed economy, the interest rates in the country are likely to imitate the trend shown by the other developed economies in the past decade and India is expected to demonstrate a falling interest rate regime. Considering the trajectory that the interest rates are expected to follow in such a scenario, it is important for the investors to look for the products offering consistently high and guaranteed returns with great degree of certainty.
Opportunely, to support the citizens in their old age planning, India has a growing pension annuity market, where, since long time, experienced insurers like LIC have been offering various types of annuity plans to suit varied needs of the customers in Indian market.

In pension or annuity market various plans are offered to the individuals where either an initial lump sum (immediate annuity) or a regular term bound investment over a period (deferred annuity) generates annuity or pension for the forthcoming years of the individuals. LIC’s Jeevan Akshay VI is an excellent plan for people to choose for their post-retirement planning. It is an immediate annuity plan, where in a lump sum investment of as little as Rs.1 lac to as high as any person is willing to invest can be placed to earn immediate regular income for the future life. The plan is available to all the citizens within a wide age bracket of 30 years to 85 years and irrespective of the age there is no requirement of medical examination to invest in this plan.

In a falling interest regime that we are expecting in our country in the near future, this is a plan which is generating an immediate guaranteed income at a rate ranging from 7.44% to 9.78% depending on the type of annuity option chosen by the investors. There are multiple annuity options available under the plan to suit the investors’ needs according to their age, liabilities and financial objectives. Some of those options are detailed below:

1) Annuity for life: The annuitant receives a fixed regular income for his / her life time. (Most suitable for the young investors who have large number of years to live)

2) Annuity payable for 5/10/15/20 years certain and life thereafter: The annuitant (or his / her heir) receives a fixed regular income for the chosen term and for the life time after the term is over as long as the annuitant survives. (Most suitable for investors seeking high rate on return)

3) Annuity payable for life with return of purchase price on the death of annuitant: The annuitant receives a fixed regular income as long as he / she lives and after death of the annuitant the lump sum initial investment amount is returned to the nominee or heir. (Most suitable for the investors seeking to leave an estate or a legacy for their heirs)

4) Annuity for life increasing @ simple rate of 3% pa : The annuity amount will increase at the simple rate of 3% every year till the annuitant survives. (Most suitable for the investors seeking regular increase in income)

5) Annuity for life with provision for 50% annuity payable to spouse on death of annuitant: The annuitant receives 100% of the annuity amount for his/her life time and after death 50% of that amount is paid to the spouse till the spouse survives. (Most suitable for the investors seeking to make provision for self as well as spouse)

6) Annuity for life with provision for 100% annuity payable to spouse on death of annuitant: The annuitant receives fixed regular income until death, after which the annuity continues for the spouse as long as spouse survives. (Most suitable for the investors seeking economic security for self and spouse)

7) Annuity for life with provision of 100% annuity payable to spouse with return of purchase price on death of last survivor: The annuitant receives a fixed regular income for his/her life, after which the spouse continues to receive the same amount for his/her life and on the death of last survivor, the initial lump sum investment amount is returned to the nominee or heir. (Most suitable for the investors seeking economic security for self, spouse as well as children thereafter)

With a gamut of options to choose from under the wide umbrella of a single plan, LIC’s Jeevan Akshay VI-IV is an important product which is highly recommendable in every investor’s financial portfolio. In view of the future economic scenario in India, as explained above, significance of such a tool in every citizen’s financial kitty cannot be undermined. It is strongly recommended that investors should park any lump sum funds available with them in such a long-term instrument to secure their old age years and they should keep adding to their pension basket regularly as per their post-retirement income requirement estimates.

LIC’s Jeevan Akshay VI plan was first introduced in the year 1987 with the promised returns of 12%, and the investors who invested in the plan in those days, still continue to receive the same returns, even when the interest rates in the market have slipped down to a level of 7% only. The importance of a guaranteed returns product cannot be undermined for the investors planning their old age finances, as it eliminates the risk or uncertainty to offer the much needed peace of mind in the non-earning years of life.

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