All you wanted to know about Saral Pension plan

In order to simplify insurance product choice for lay investors, the insurance regulator, IRDAI, has been introducing standard products with uniform features in both life and non-life insurance. Recently, a new product has been added to the list — the immediate annuity plan, Saral Pension, which all life insurers have to offer from April 1, 2021.

An annuity plan helps an individual to receive a regular payment from an insurer for life, after making a lump-sum or regular payment for a certain period. There are usually two types of annuity plans — immediate and deferred. Saral Pension is an immediate annuity plan where the policyholder or the investor makes a lumpsum payment upfront and the annuity payment starts immediately. The product offers pension for lifetime. In industry jargon, Saral Pension is a single premium, non-linked, non-participating immediate annuity plan. This means that it offers a guaranteed return that does not depend on markets or the insurers’ profits. Like other annuity plans, Saral Pension doesn’t have any cap on the investment amount.

Saral Pension simplifies the selection for the individual and brings uniformity across insurers.

Saral Pension offers two annuity options to the policyholders or annuitant. One, life annuity with 100 per cent return of purchase price where the pension (annuity amount) is paid for life. The initial investment (purchase price) is paid back to the nominee on the death of the investor. The second option is joint life annuity where the annuity amount is first paid to the initial investor for life. After the death of the person, if the spouse is surviving, the spouse continues to receive same pension for life till his/her death. Subsequently, on death of the spouse, the purchase price is payable to the nominee. But if the spouse has pre-deceased the investor, the purchase price is payable to the nominee. While there is no cap on the maximum, the minimum annuity amount to be paid (by the insurer) is ₹1,000 per month, ₹3,000 per quarter, ₹6,000 per half-year and ₹12,000 per year.

This product, as per IRDAI’s guidelines, should be made available across all distribution channels. Unlike other annuity plans in the market where the minimum age is 20-30 years, under Saral Pension, the minimum age at entry is 40 years (maximum 80 years).

Annuity products are one of the safe ways to save for your post-retirement expenses. Saral Pension plan, in this regard, is a simple product and it would help policyholders secure a pension for life, particularly if he/she will not be receiving any pension post retirement. While this product may not offer multiple annuity options, the features serve the basic purpose well. A policyholder can avail loan against Saral Pension similar to some of the pension products offered by insurers such as Jeevan Akshay VII from LIC.

A policyholder can surrender the policy after six months, only on diagnosis of critical illness. That is, if the annuitant or spouse or any children of the annuitant, is diagnosed with critical illnesses specified in the policy document, then 95 per cent of the purchase price shall be paid to the annuitant. However, like other standard products in the market, the amount of pension you receive for the upfront payment is left to the insurers to decide. Do remember that annuities are taxed at your slab rate so the pension will be taxed like your income at slab rates.

While the product is simple and useful, wait for the annuity rates that insurers announce, as that will decide if you get bang for your buck.

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