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Blog of Mathews Jacob

You retire from your work, not from your Life!


Mathews Jacob
23-Mar-2021

You have toiled your entire life and have reaped the benefits of it in your earning years. Does that mean that your life goals should also retire when you hang up your boots? Absolutely not!

Live your retirement life the way you have been in your working years and fulfil your life goals - going to that dream destination, picking up a hobby, leaving a legacy or to simply be independent. Regardless of what your life goals are, you need to have a strong financial plan to realise them.

A Fixed Deposit (FD) in a reliable bank has been the safest way of safeguarding our hard earned money. Interest from such deposits drawn periodically was enough to meet our day to day needs. But, the situation has changed. Interest rates of FD fell down drastically over the last couple of decades. In 2011-12 the FD interest rate was 9.25%. Whereas, the present interest rate is 5.5%. Financial Gurus predict further fall in interest rates in the coming financial years as part of a global tendency. It could be as low as 3.5% for an FD of one year term.

Of course, there are private banks offering a higher rate of interest. But, they are not safe. A reputed private bank in Kerala vanished in thin air all of a sudden last year and a number of depositors including NRIs are still desperately running up and down to get back at least a portion of their huge deposits to no avail. Certain other private banks are exhibiting symptoms of similar fate and depositors are frantically withdrawing their fund.

It is in this scenario that ICICI Prudential has launched an annuity product called Guaranteed Pension Plan (GPP) with two options- immediate annuity or deferred annuity. Buyers of the plan can pay a lump-sum and choose to start receiving their annuity immediately monthly/quarterly/ yearly, or anytime after one year to 10 years. This product is for generating a predictable income for your lifetime.

For example, if you opt for annuity after one year, you will get an interest of 6.5% roughly. On the other hand, if you go for annuity after 10 years, you will get interest of 10.5% roughly. What is the most important point to note is the fact that the interest rate will be locked for the entire lifetime. In other words, your deposits will be unaffected by the fluctuations in interest rates declared by RBI every year. The annuity amount is guaranteed for your entire lifetime.

In both Immediate Annuity and Deferred Annuity schemes there are further options for With Return of Purchase Price or Without Return of Purchase Price. Let me explain this. The above said interest rates are applicable for With Return of Purchase Price option. In this case, you will get the annuity for the entire lifetime and the amount deposited originally (purchase price) will be returned to the nominee when you cease to live. In the other option, that is, Without Return of Purchase Price, the amount deposited will not be returned but the interest rate will be much higher than what was mentioned earlier. Roughly, the annuity would be 50% higher without return of purchase price.