Pension ULIPs offered by life insurance companies have competitive features. They are similar to regular ULIPs in terms of nature and cost structure. Both have a lock-in of five years and the premiums paid are tax exempt under Section 80C — up to ₹1,50,000 annually.
Pension ULIPs work in two phases — accumulation and income. During the accumulation phase, the policyholder is allowed to build the retirement corpus by investing in different asset classes. As mandated by the insurance regulator, pension ULIPs should guarantee at least the total premium paid by the policyholder at the time of pay-out.
On death, the nominee will receive the higher of the fund value or at least the total premium paid till then. The nominee will be given the option to either withdraw totally or purchase an annuity product from the same insurer. On surviving the policy term, the policyholder will receive the maturity proceeds (vesting benefit) — higher of the fund value or at least the total premium paid.
As per the current regulations, one can withdraw one-third of the maturity proceeds as lump sum, which is tax-free. The balance must be converted into ‘annuity’ that is offered by the same insurer.
Here is a review of ICICI Prudential Easy Retirement plan.
ICICI Pru Easy Retirement is a pension ULIP. It is available offline only. The premiums collected are invested in two funds as per the investor’s choice. The plan provides a guaranteed pension booster on completing the 10th policy year and every fifth policy year thereafter, which will be equal to 5 per cent of the average daily total fund value over the preceding 12 months.
On death, the nominee will get the higher of: the fund value or 105 per cent of the total premium paid. The nominee can either withdraw this amount as lump sum or purchase an annuity product from ICICI Pru Life to get pension. On maturity, the policyholder is given the higher of the fund value or the assured vesting benefit.
Charges
Under ICICI Pru Easy Retirement, the annual premium allocation charge (deducted at the time of premium payment) is 3 per cent for less than ₹5-lakh premium, 2 per cent for ₹5 lakh-₹10 lakh and nil for above ₹10 lakh. The policy administration charge (subject to a maximum of ₹6,000 a year) is 0.25 per cent per month for the first five years and 0.05 per cent per month for 6-10 years for an annual premium of up to ₹5 lakh.
Both premium allocation and policy administration charges levied under ICICI Pru Easy Retirement (especially for annual premium below ₹5 lakh) are almost similar to that of other pension ULIPs — Bajaj Allianz Retire Rich and SBI Retire Smart. However, HDFC Life Click 2 Retire scores over all other pension ULIPs as it levies no premium allocation and policy administration charges.
ICICI Pru Easy Retirement levies a fund management charge of 1.35 per cent of the fund value, which is almost similar to that of other pension ULIPs.
Fund options
ICICI Pru Easy Retirement provides two fund options — Easy Retirement Balanced Fund (invests up to 50 per cent in equity, and the rest in debt) and Easy Retirement Secure Fund (allocates 100 per cent in debt with zero investment in equity).
Though the recent under-performance of equity and fixed-income markets have taken a toll on the performance of most ULIP funds, the funds provided by ICICI Pru Easy Retirement posted decent returns compared with peers. Easy Retirement Balanced Fund currently invests around 36 per cent in equity, and has delivered 6 per cent and 9 per cent for three- and five-year periods respectively. Data compiled from Capitaline show that ULIP hybrid debt-oriented funds have delivered returns of 5 and 10 per cent respectively for the same periods.
Easy Retirement Secure Fund has given 6.2 and 8.3 per cent for three- and five-year periods respectively. ULIP debt funds generated 5.1 and 7.8 per cent for the same periods. The plan allows four free switches every policy year. Subsequent switches will be charged ₹100 per switch.
Our take
Compared with the new-age online ULIPs, the charges under ICICI Pru Easy Retirement are higher. However, the guaranteed pension booster under the plan adds to the return and, to an extent, nulls the impact of the higher charges.
The net yield under the plan, for a gross return of 8 per cent, assuming a policy term of 25 years and an annual premium of ₹1 lakh, comes to 7.26 per cent. This is relatively higher than that of most online regular and pension ULIPs.
The returns generated by the two funds under the plan have also been decent. Across time periods, they have been either at par with or above average than peers.
Considering the above facts, investors with a medium-risk profile looking for post-retirement income can consider investing in ICICI Pru Easy Retirement.