Investing in a retirement plan is a must for anybody who intends to seek financial security in his post retirement life. However, before you make your investment in a Pension Policy make sure that you have the important facts right.
1) Know the charges
Charges can sometimes kill the returns you would otherwise hope to earn from the market. There are various charges levied on a pension fund so you need to enquire about all of these. These charges basically include fund management charges, Premium allocation charges and administrative charges.
2) What if you discontinue your premium contributions
Life is uncertain and there is a fair chance that for some reasons you can miss on your annual contributions. You need to know the consequences upfront in order to take a decision. In most pension plans, for pension accounts from which premium contributions are discontinued, these accounts are transferred to pension discontinued policy fund.
Once this happens an annual fund management charge is still applied and you need to ask your pension fund plan about this charge. Besides, in case you want to reinstate your discontinued policy you will have to pay a penalty and it is in your best interest that you are aware of the cost in such situations.
3) Is there a cap that limits exposure to any particular asset class
If you are looking to generate aggressive returns on your retirement savings you need to be sure that the pension fund does not apply a cap in terms of the exposure it can take in an asset class like equity. Most ULPPs would allow you to invest upto 100 percent of your savings in equity. However, this is not the case with National Pension Scheme (NPS) which caps equity investments to 50 percent of the portfolio.
4) How much can I withdraw on reaching retirement age and what are the Annuity options?
Once the accumulation phase is over the vesting phase begins and this is the time when you are allowed to gain benefits of your retirement planning. Most plans would allow you to withdraw 33 percent of the retirement corpus tax free, while the rest can only be taken out as annuity. In case of NPS, if you are yet to attain the age of 60 you may be allowed to withdraw only 20 percent of the corpus as lump sum amount while the rest has to be taken as annuity. Once you reach the age of 60, you can withdraw up to 60 percent of the corpus as lump sum.
An NPS allows you to choose the best annuity scheme available at that time, but with a ULPP you might have to settle with the annuity scheme offered by the Insurer from whom you bought the ULPP.