I recently received an email indicating that if the pension plan could pay £69,000 a month over 15 years, it would provide a monthly salary of 1 lakh for a lifetime. To explain in detail, it is ICICI Prudential Life Insurance, which offers a “guaranteed pension plan Flexi” that promises a guaranteed lifetime income with flexible investment options. This email was purely a marketing gimmick, but how does this compare to investing in mutual funds? Between ICICI Guaranteed Pension Plan Flexi vs. Investment Trustanalyze both options to see which options are suitable for long-term wealth creation and retirement security.

About ICICI Guaranteed Pension System Flexi

ICICI PRU Guaranteed Pension Plan Flexi is a deferred pension plan for individuals who are not linked or participate (recently) LIC Smart Pension Plan The pension plan was launched soon) was designed to provide policyholders with guaranteed income after retirement. It offers the flexibility of premium payments, deferral periods and pension options to meet diverse retirement needs.

ICICI Guaranteed Annuity Plan Flexi vs Mutual Funds -1£1 Where should I invest for a monthly income of Lakh?

Features

  • Premium Payment Period (PPT): Policyholders can choose PPTs ranging from 5 to 15 years, allowing customizations based on their financial capabilities and retirement timeline.
  • Deferred period: The period of postponement, the time before pension payments begin, can match PPTs ranging from 5 to 15 years.
  • Pension options: The plan offers multiple pension options, including single living and co-living, with or without premium, to address financial security for individuals and spouses.
  • Flexible payout frequency: Pension payments can be received monthly, quarterly, semi-annual or annually, based on policyholder preferences.

advantage

  • Guaranteed Lifetime Income: The plan ensures a stable income flow for pensioners throughout their lifetime and provides financial stability for retirement.
  • Premium Options Returns: Certain pension options provide premium rebates to the beneficiaries for the death of pensioners, ensuring legacy plans.
  • High premium benefits: Higher premiums unlock additional pension benefits as a percentage of the pension rate and increase the income received.

You invest £69,000 per month over 15 years and receive £1 per month. How true is this?

This is what I got.

To evaluate this proposition, consider a hypothetical scenario.

  • Total investment: 69,000 per month x 12 months x 15 years = £1,24,20,000

The pensions received will depend on a variety of factors, including the age at the time of purchase of the pension, the duration of deferral chosen, and the specific pension options selected. Pension rates are determined and subject to change based on these parameters.

The plan provides guaranteed income, but to achieve a monthly pension of £10 million, certain conditions must be met, such as age, duration of postponement and pension rate at the time of pension purchase. It is essential to consult with the latest pension rates and use the ICICI PRU Guaranteed Pension Plan Flexi Calculator to determine the exact pension amount for your particular scenario.

How does this compare to investments in index funds or flexicap funds?

What happens if I get a 13-15% return on an index fund that generates 12% annual returns or a actively managed Flexi-CAP mutual fund instead of investing in a guaranteed pension scheme? Let’s compare:

Scenario 1: Investing in index funds (12% return per year)

  • Total investment: 15 years, £69,000 per month
  • Final Corpus at 12% CAGR: Approx. 3.2 crores
  • Retirement after retirement: Assuming a 6% withdrawal rate, we can withdraw about 1.6 lakh per month while preserving capital. Even if you consider a 4% withdrawal rate, you can still withdraw around £1.3 per month, while preserving initial capital assuming a 10% return.

Scenario 2: Investing in Active Flexaccap Fund for Risk Takers (13-15% Annual Revenue)

  • Total investment: One of the following is 15 years, £69,000 per month. Top Flexica Mutual Fund. These are risky as such funds will be invested in MidCap or SmallCap funds.
  • Final corpus at 14% CAGR (average): Approx. 3.8 crores
  • Retirement after retirement: With a 6% withdrawal rate, you can withdraw £1.9 lakh per month while growing your corpus over time.

Important points from this comparison

  • Monthly income increase: Investing in index or flexicap funds can significantly increase monthly withdrawals over pension plans.
  • Liquidity: Unlike pension plans where funds are locked, investment amounts are still accessible in emergencies.
  • Inflation protection: Market-related investments grow over time and provide inflation-adjusted returns compared to fixed pensions.

Hidden or negative factors in such pension schemes

  • Impact on inflation: Guaranteed revenue is fixed, does not take into account inflation and potentially reduces purchasing power over time.
  • Taxation: Pension payments are subject to taxation in accordance with the individual’s tax slab that may reduce the net profit received.
  • Liquidity constraints: Investing can make access to lump sum payments difficult and limits economic flexibility in emergencies.
  • Changes in pension rate: Pension rates are not fixed and may change based on economic circumstances, affecting expected income.

Conclusion: ICICI PRU Guaranteed Pension Plan Flexi offers a structured approach to ensuring post-retirement after lifetime income with flexible investment options. However, certain claims of receiving £69,000 a month per month over 15 years depend on a variety of factors, including age, duration of postponement, and general pension rates.

Compared to market-related investments such as indexes and flexicap funds, pension plans may not be the best choice for wealth creation and retirement income. They offer certainty and security, but their stiffness, low returns and lack of inflation protection make them less attractive compared to a well-varied stock investment.

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