Reportedly, the Life Insurance Corporation of India (LIC) will stop selling one of its most popular annuity products, Jeevan Akshay VI, from December 1, 2017, and is expected to introduce a new version of the plan with revised rates soon.
Being an assured return plan with a fixed return from an institution backed by the government of India, the plan looks appealing especially when interest rates are falling. By investing once, the investor starts receiving annuity either at monthlyquarterly, and half yearly or yearly intervals.
If you are on the lookout for a guaranteed, lifetime pension product that is sovereign backed, should you invest in Jeevan Akshay? Before you take make this decision, you should know more about the product.
Pension options in Jeevan Akshay
The investor has to decide the pension option at the time of investing. There are seven options to choose from:
Pension options in Jeevan Akshay
The investor has to decide the pension option at the time of investing. There are seven options to choose from:
(i) Annuity payable for life at a uniform rate.
(ii) Annuity payable for 5, 10, 15, or 20 years certain and thereafter as long as the annuitant is alive.
(iii) Annuity for life with return of purchase price on death of the annuitant.
(iv) Annuity payable for life increasing at a simple rate of 3 percent per year.
(v) Annuity for life with a provision of 50 percent of the annuity payable to spouse during his/her lifetime on death of the annuitant.
(vi) Annuity for life with a provision of 100 percent of the annuity payable to spouse during his/her lifetime on death of the annuitant.
(vii) Annuity for life with a provision of 100 percent of the annuity payable to spouse during his/her life time on death of annuitant. The purchase price will be returned on the death of the last survivor.
How does the pension option work?
Pension under option (i) will be paid for lifetime and on death of the investor, the lump sum invested (purchase price) is not returned to the family. Under option (iii), the purchase price is returned. The amount of pension therefore is highest for the first option and reduces accordingly till the seventh option, where the pension is the least.
n the last pension option (vii), where pension is paid to the spouse after the investors' death and the purchase price is returned to the legal heir after both parents are not there, the 30-year and 80-year returns vary between 6.47 percent and 6.83 percent.
Remember, comparing an immediate annuity plan such as Jeevan Akshay VI with other fixed income investments such as bank fixed deposits, Senior Citizens' Savings Scheme, post office monthly income scheme, or Pradhan Mantri Vaya Vandana Yojana (PMVVY) pension scheme may not be equivalent as these all are for a fixed period.
Should you invest?
Jeevan Akshay VI is a debt product and suits conservative investors looking for predictable returns for their entire lifetime. Predicting the movement of interest rates over a long term is a difficult task. Locking of funds in a fixed income product for a long term may put the investor in the back-foot if the rates start to move up. But, for those who are willing to trade-off this unpredictability with assured returns may consider this scheme.
However, keep in mind that the amount invested in the plan will not acquire any paid-up value and you can't a loan and neither will you get a surrender value. Hence, invest only that portion of your corpus which you don't need for a long time or willing to forgo. Also, choose the pension option carefully as it cannot be changed later on.
Senior citizens may consider investing some portion of their retirement corpus in this plan after accounting for taxes. Even though the plan is available to those who are 30 years old, investing in this scheme for them doesn't really help especially if they are in the highest tax slab. With annuities fully taxable in the hands of the investor in the year of receipt, the post-tax return would be low for them.
