This is one mistake I never did in my financial life. While it requires some study and understanding to see why typical insurance policies offered by Insurance industry are junk, there is no ambiguity in pension plans. the way they are structured, they are shouting at your face that they are junk.
1. While section 80 benefits are there, they are clubbed with other investments so no special advantage for pension funds.
2. You get only 1/3rd of your money (even assuming that the plan you invested is performing as good as any decent mutual fund (debt or equity depending on your chosen asset class), this is bad)
3. You have to buy annuity with only the company you invested in. No flexibility to shop around for better annuity plan. I think this is new rule, previously you were free to choose the annuity plan.
4. Killer is your annuity is totally taxed. No option of investing in tax efficient schemes. Even a decent debt fund with its indexation option and lower long term capital gains beat this.
5. finally interest rate is locked when you buy annuity of which you have no idea. But looking at the annuity rates offered, they don't even beat the best FD rates offered at that time.
There is the scheme NPS. But most of the above points apply there also. There is a talk of making the annuities tax free but the points 1,2 and 5 still apply for NPS.
1. While section 80 benefits are there, they are clubbed with other investments so no special advantage for pension funds.
2. You get only 1/3rd of your money (even assuming that the plan you invested is performing as good as any decent mutual fund (debt or equity depending on your chosen asset class), this is bad)
3. You have to buy annuity with only the company you invested in. No flexibility to shop around for better annuity plan. I think this is new rule, previously you were free to choose the annuity plan.
4. Killer is your annuity is totally taxed. No option of investing in tax efficient schemes. Even a decent debt fund with its indexation option and lower long term capital gains beat this.
5. finally interest rate is locked when you buy annuity of which you have no idea. But looking at the annuity rates offered, they don't even beat the best FD rates offered at that time.
There is the scheme NPS. But most of the above points apply there also. There is a talk of making the annuities tax free but the points 1,2 and 5 still apply for NPS.
Yes, probably it is the biggest question of one's life that which individual pension plan is right for one. Every one is after getting himself registered in right pension scheme. Your post is an eye opening post on it.
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