Aug 19, 2006 05:34 PM
6614 Views
I invested in the HDFC'Vanilla'(not unit linked) Personal Pension Plan 3 years ago. In those days, investing in a pension plan gave you an additional benefit upto 10, 000 per annum under section 80CCC. This and the idea of putting away some regular money towards retirement savings was what attracted me towards this investment. Not to mention the fact that Unit Linked Plans were terribly expensive and non-transparent back then(that scene is somewhat better in 2006, but ULIPs are still way too expensive, the insurance company ends up having a big share of your pie).
How does the plan work? Like this:
Invest something every year upto a "vesting age" which you chose when you join. The minimum is usually 50 years. When you reach that age, all your contributions, plus whatever "bonus" is accrued becomes your'ANNUITY'. At that time, you can chose to have a regular pension paid to you by the company out of that annuity or you can go to any other company who will offer you a better deal on pension from the same annuity.
My investment is limited to 12, 000 per year and I chose my vesting age to be 50 years. They have regularly been declaring a bonus each of those years. I was never able to understand the real rate of return as they call it a'REVERSIONARY BONUS' and my agent always told me that even a 3% returns is very high if it is'REVERSIONARY'. I should not blame the agent though, he only took advantage of my trust and the fact that I was lazy enough not to make any simple calculations myself.
When I DID figure out a way to calculate the rate of return to a near approximation, I was more than shocked. This is not even giving me 3% returns each year! When I called them to see if I can just exit this, they told me that I will get back only 50% of the premiums I have paid them if I chose to exit now(I obviously decided it is wiser to remain invested). But this is clearly a very bad investment and I would recommend everyone to stay away from investing in this scheme(not just HDFC, any company's vanilla pension plan).
To summarize the key problems in this one are
No assured rate of return - you are at the insurance companies mercy to declare the bonus they want
No exit option - at least no'decent' exit option.you lose a lot if you exit in between
The government is still playing with the PFRDA bill. So we dont know what surprises get thrown in there when it finally goes through.(This applies to ALL pension plans, even unit linked ones)
So the next time you see the ad where you can become "financially independant" in your old age by investing in their plans, be assured they have taken that ad too far.
