Hello Sir, My son is working professional and his age is 32 yrs. He wants to invest in LIC pension scheme on monthly basis. Is it good scheme? Please also guide with alternative options. Regards

Ans: The LIC Pension Plus Plan is designed to provide a pension after the policyholder retires. However, let's take a closer look at its features and suitability for your retirement goals.

Key Features of LIC Pension Plus Plan
Regular Contributions: You invest Rs. 1.5 lakh annually. This amount is accumulated and invested over the policy term.

Investment Choices: The plan usually offers a choice of funds (typically debt and equity). You can select according to your risk profile.

Maturity Benefit: At the end of the term, the accumulated amount is used to purchase an annuity for your pension. Only one-third of the corpus can be withdrawn as a lump sum.

Annuity Purchase: The remaining two-thirds must be used to purchase an annuity, which will provide you with regular income post-retirement.

Is LIC Pension Plus a Good Choice for Pension?
1. Returns May Be Lower
LIC Pension Plus is largely conservative in its investment approach. The returns are typically lower compared to other pension plans or mutual funds. This means the corpus you accumulate may not grow as much as it could in higher-return investments.

Action Point: If your risk appetite allows, consider higher-return investment options to accumulate a larger retirement corpus.
2. Liquidity Constraints
One key limitation of LIC Pension Plus is its lack of flexibility. You are required to use two-thirds of the accumulated amount to purchase an annuity, which may not provide the highest return or flexibility in the future.

Action Point: You could explore more flexible investment vehicles that give you full control over the corpus and payout methods at retirement.
3. Taxation on Annuity
Annuity income is taxable, meaning the pension you receive from this plan will be added to your income and taxed as per your slab. This can reduce the actual post-tax income you receive in retirement.

Action Point: Other retirement products, like equity mutual funds, may offer more tax-efficient options for withdrawals, especially if you need a lump sum for post-retirement needs.
Comparing to Mutual Funds for Retirement Planning
1. Flexibility in Withdrawal
Equity mutual funds, especially those designed for long-term retirement planning, offer more flexibility. You can withdraw your entire corpus when needed, or structure it in a way that suits your specific financial needs in retirement.

2. Higher Return Potential
Actively managed equity funds have historically provided higher returns than traditional pension plans. This means your retirement corpus can grow much faster, giving you more financial security in your later years.

Avoid Direct Mutual Funds: While direct funds have lower costs, they lack professional guidance. It’s advisable to use a Certified Financial Planner for better decision-making and monitoring your retirement portfolio.
3. Tax Efficiency
With mutual funds, especially if held long term, you benefit from tax-efficient withdrawals. Long-term capital gains (LTCG) are taxed favorably, with gains above Rs. 1.25 lakh taxed at 12.5%. Compared to annuity income, this is a more tax-efficient way to manage retirement income.

Other Retirement Planning Considerations
1. Diversify Investments
Instead of locking all your retirement savings into one plan, consider diversifying into multiple instruments like mutual funds, hybrid funds, or even debt funds for stability. This diversification will help reduce risk and offer you better control over your retirement corpus.

2. Review Your Asset Allocation
At your age of 54, you’re approaching retirement, but still have time to grow your investments. Ensure that your portfolio is well-balanced between equity (for growth) and debt (for safety). Too much exposure to conservative products like LIC Pension Plus may limit your corpus growth.

3. Consider Inflation
Pension plans often fail to keep pace with inflation. What seems like a good monthly pension today might not be enough 10 years into your retirement. Equities and growth-oriented mutual funds are better at helping your retirement savings outpace inflation.

Final Insights
The LIC Pension Plus Plan offers some security, but it lacks flexibility and growth potential. While it provides a safe route for those who are risk-averse, it may not be the best way to maximize your retirement corpus.

Here’s what you can consider:

Keep the LIC Pension Plus if you prefer security and a guaranteed annuity. However, balance it with growth-oriented investments like mutual funds for higher returns.

Consider redeeming or switching a part of your portfolio into actively managed equity funds or hybrid funds for more balanced, long-term growth.

Consult a Certified Financial Planner to guide you through these decisions, helping you adjust your portfolio to ensure maximum returns, liquidity, and flexibility for your retirement.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment