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Retirement made easy with unit linked pensions

Published on Tue, Dec 19, 2006 at 11:25 | Source : Moneycontrol.com

Updated at Tue, Jan 02, 2007 at 12:43

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Given a thought to retirement planning? If you're young and wondering why retirement planning should start so early you could be mistaken.

Planning for retirement ideally should begin when you start working and you must set aside a particular amount every month towards this goal. The amount and the type of investment depend on your needs and risk profile.

Successful investing for retirement requires:

A) Determination of risk appetite

B) Discipline in investing

C) Regular monitoring

In my earlier articles on retirement, I had suggested considering unit

linked pension plans (ULPP) as an option. But then even those who are tech-savvy find that an insurance website loads them with quite an amount of information, and yet most are unable to figure out how to use it or rather how to compare.

(Also read - Never tire of retirement planning )

I have tried to analyse unit linked pension plans of three companies. However, I strongly recommend that you visit your financial planner and then decide the type of policy and company that best suits your needs.

Point of difference	Bajaj Allianz UG Easy Pension Plus	HDFC Unit Linked Pension Plus	ICICI LifeTime Super Pension
Fund Management Charge	Equity-1.75% Accelerator Midcap-1.75%	Growth Fund-0.8% Balanced Fund-0.8%	Maximiser Fund-1% Balancer-1.5%
Policy Administration Charge	Rs. 50 per month (increases 5% per annum)	Rs 20 per month	Rs 40 per month
Top Up Charge	1^st year-2% 2^nd year-2%	1^st year-2.5% 2^nd year-1%	Not Applicable
Life Cover	Not Available	Not Available	Available
Top Up	Allowed	Allowed	Not Allowed
Switches	3 switches free in a year	24 switches free in a year	4 switches free in a year
Returns for the equity plans in their Pension Funds for the past 2 years (As on 11^th Dec '06)	47.1%	48.3%	40.3%

Here are the other factors you should consider before narrowing down on the insurance company:

a) The fund manager's ability to manage money over the long-term (unlike mutual fund managers who aim to outperform their peers quarter-on-quarter)

b) The frequency of portfolio declaration, which denotes transparency

c) The fact that switches can be made across schemes (from equity to liquid to debt schemes) without any entry or exit loads, and of course, free of short-term capital gains tax.

d) And, the most important factor is selecting a life insurance company - a company that you can trust will outlive you.

A plan for retirement must be made 'NOW', irrespective of your age, profession and lifestyle. If you are working, it does not matter how many years you have to retirement. What's important is you must have a retirement plan in place.

The sooner you plan for retirement, the easier it gets. Mr Sharma, 31, who plans to retire at the age of 65, needs a corpus of Rs 1 crore, to meet all his goals and expenses on retirement.

He has 34 years for retirement and, because he can expect 10% per annum on his investments, he needs to save Rs 3,000 per month to meet his goal. However, if he was 45 years old and wanted to retire at age 65 with the same needs and goals, he would need to save over four times i.e. Rs.13,200 per month.

(Also read - Your goals, not your age, make asset allocation decisions )

It's time you planned for the golden years of retirement right away.

Money Matters Mantras

Pension plans ensure a disciplined way of saving for retirement

Identify all costs before investing in any ULIP

Opting for monthly premium in ULIPs work like SIPs in mutual funds

Returns must be seen for longer term and not short periods

Optimize your risk to get maximum returns

Start saving for your golden years of retirement right away

The author, Lovaii Navlakhi, is a Certified Financial Planner and the Managing Director of International Money Matters Pvt. Ltd. He can be contacted at lovaii@internationalmoneymatters.com

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