Ten long years ago I decided to invest in a pension plan. The scheme I chose was from HDFC. The investment was fixed at 10 yearly installments of Rs. 10,000/= each. However there was no assurance about any minimum payout and it was going to be dictated by the market. Back-of-the-envelope calculations showed that taking the return at 10% p.a with yearly compounding the maturity value should be Rs. 1.75 lakhs (It would be higher with quarterly compounding.) Also the pension on this corpus at the same rate should be 17,500/= per annum if the corpus was to be returned to legal heirs on death of the pension holder. In case the annuitant chose for annuity without any return of corpus on his death, the return should be even higher.
All the calculations have fallen flat on the ground. The total maturity value was Rs. 1.4 lakh approximately. Here is what was offered to me by HDFC on maturity (PLEASE ZOOM TO 200%):
And lest you should forget, let me remind you that this annuity income is liable to be taxed in your hand. This means a deduction of 10 to 30 percent depending on your other income.
To top it all, during the past few years I was being charged service tax on the annual premium paid by me. Then again I have had to pay service tax on the amount being invested in annuities. The tax on a investment in annuities of Rs. one lakh comes to Rs. 3,019.
I have chosen to invest the mandatory portion of annuity purchase with LICI who are offering a very slightly higher annuity. This could be possible under the Open Market Option which has to be compulsorily offered to the investor.
This raises serious doubts about the fate of the new employees being covered under "defined contribution" pension scheme which will work on these very lines. Notwithstanding our government's dislike for it, investment in gold will be a far far superior option. Real estate, too, will be a good or a better choice.
All the calculations have fallen flat on the ground. The total maturity value was Rs. 1.4 lakh approximately. Here is what was offered to me by HDFC on maturity (PLEASE ZOOM TO 200%):
And lest you should forget, let me remind you that this annuity income is liable to be taxed in your hand. This means a deduction of 10 to 30 percent depending on your other income.
To top it all, during the past few years I was being charged service tax on the annual premium paid by me. Then again I have had to pay service tax on the amount being invested in annuities. The tax on a investment in annuities of Rs. one lakh comes to Rs. 3,019.
I have chosen to invest the mandatory portion of annuity purchase with LICI who are offering a very slightly higher annuity. This could be possible under the Open Market Option which has to be compulsorily offered to the investor.
This raises serious doubts about the fate of the new employees being covered under "defined contribution" pension scheme which will work on these very lines. Notwithstanding our government's dislike for it, investment in gold will be a far far superior option. Real estate, too, will be a good or a better choice.
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