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In a first, private insurer HDFC Life has launched a guaranteed plan for a single premium annuity product, assuring a fixed return of pension for lifetime, the rate of which is decided at the time of the purchase of the plan.
An annuity is a contract aimed at generating steady income during retirement, wherein lump sum payment is made by an individual to obtain certain amounts immediately or at some point in the future.
"Although annuity rates may be acceptable today, if interest rates were to fall, annuity bought at retirement may be lesser than today’s rate…This product, HDFC Life Pension Guaranteed Plan, is addressing the need to have a fixed annuity return…if you give us say 10 lakh, we will give you as high as 12-13 percent which you will get as a guarantee from us from the time you purchase the plan and you will get the income from the time you decide to retire till your lifetime…,” Srinivasan Parathasarathy, Chief Actuary and Appointed Actuary of HDFC Life.
For instance, at age 45, if a customer purchases a plan of Rs 50 lakh with a deferment period of 10 years, he can get an annuity rate of 12 percent with an annuity amount of Rs 6 lakh each year.
In another example, at 45, if you invest Rs 1 lakh, the customer gets a little less than about Rs 12,000 on a yearly basis after 10 years.
Chinmay Bade, VP –Product at HDFC Life said, “We conducted a research of retirement products from those who own annuity and those looking at annuity plans and have come out with this product... The plan allows flexible options for receiving annuity – Monthly, Quarterly, bi-Annually, Annually.”
The product requires a minimum investment of Rs 76,000 with a minimum age of 45 years. In case of death, the lump sum is returned his or her spouse.
Parathasarathy said, “The USP of this product is that if the rates prevailing at that time are less as pegged to the interest rates then, I, as a customer, will still get higher rate, which is guaranteed right away. This is addressing that gap.”
As of now, the business of annuity plans are skewed towards the public sector firms with just a couple of private players. But no plans have fixed rate for a deferred annuity plan.
According to Parathasarathy, when individuals think of long-term financial planning, they often neglect the most crucial aspect, that of retirement planning. It is only when one gets closer to their fifties or crosses their fifties that he/she starts thinking about retirement. With improvement in healthcare facilities, the quality of life has gone up and so has the longevity. In this scenario, it is necessary to ensure that one is able to live a comfortable life after retirement.
He added that annuity products are a factor of the ageing population of the country and people now retiring from the private corporate world have enough corpus for such retirement plans. “Hence, such products will pick up dramatically in the next 4-5 years.”
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