For pension plans average return ranges from 5.5% to 11.0%: ICICI Prudential’s Amit Palta

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As India moves towards becoming a developed economy, inflation rates are likely to fall along with interest rates. Hence, locking your money at prevailing higher rates can be an advantage over the long term. In an interview to Money9, Amit Palta, chief distribution officer, ICICI Prudential Life Insurance talks about the increasing awareness about retirement planning amid Covid-19.

Has the awareness increased about retirement planning amid Covid 19?

Palta: Covid-19 has made people realise the importance of financial planning and within that, the retirement planning component has gained significant traction. In an environment where interest rates tend to fluctuate, annuity products offer guaranteed regular income for life. Our innovative product Guaranteed Pension Plan has enabled us to grow our annuity business segment by 120% in FY2021 vis-à-vis FY2020.

What is the rate that pension plans offer?

Palta: The annuity rate depends on the variant selected i.e. Immediate or Deferred annuity option chosen and age at entry of investment. At an industry level, the average rate of return ranges from 5.5% to 11.0% p.a. as per the period of deferment and other factors. At the time of purchase itself, the customer gets to know the exact annuity rate on the investment and that remains constant and guaranteed for the entire life.

Which are the most popular type of annuity plans?

Palta: The two most popular types of annuity products are Immediate and Deferred annuity. In an immediate annuity, the guaranteed regular income starts immediately on purchasing the product. The Deferred annuity option allows for deferring the start of the regular income anywhere from 1 to 10 years. The longer the deferment the higher is the regular income. Customers can choose to receive regular income on a monthly, quarterly, half-yearly or on annual basis.

ICICI Prudential Life offers a Guaranteed Pension Plan, which is embedded with industry-first features such as ‘Early Return of Purchase Price’ upon the policyholder reaching 76 years or on turning 80. The product offers an innovative retirement solution, which provides increasing income to policyholders which can enable customers to keep pace with the rising cost of living.

What should one consider before buying an annuity plan?

Palta: Monthly expenditure – It is vital to have visibility on the monthly expenditure figure. Typically, an individual needs anywhere between 70-90% of pre-retirement income to lead a comfortable retired life. It is also important to factor in the rising inflation, on a conservative basis one can assume inflation of 5-6% p.a.

Life expectancy – It is impossible to predict how long someone would survive. Hence, the retirement corpus should be large enough to support one’s needs till the end of their life. Individuals should select an annuity plan which pays regular lifelong income.