Monday, February 4, 2013

New pension plans are still costly

To avail of the tax- saving season, unit- linked pension plans have been launched in a new avatar. HDFC Life Insurance was the first, launching the Pension Super Plus. Plans by ICICI Prudential Life Insurance and Birla SunLife Insurance followed.
Financial planners say they are fielding many queries about these products. Under Section 80C of the Income Tax Act, pension plans qualify for a tax deduction of up to ₹ 1 lakh. On maturity, a third of the corpus, which the customer receives as a lump sum, is tax- free; the rest has to be used for buying an annuity product that gives periodic income.
Guaranteed returns from new unit- linked pension plans have become popular. The Insurance Regulatory and Development Authority has asked companies to provide non- zero guarantee on maturity benefits. Earlier, it had asked for at least 4.5 per cent, which led to pension plans disappearing from the market.
However, the guarantee provided is meagre. With the new plans, an aggressive investor is likely to get one per cent guaranteed return. Sample this: ICICI Prudential Life Insurance will pay 101 per cent of the premiums paid till date to an aggressive investor (75 per cent in equity), irrespective of the policy term. A moderately aggressive fund ( 50 per cent in equity) guarantees 125- 150 per cent. And, a conservative fund ( 25 per cent in equity) would pay 145- 190 per cent, depending on the premium payment option, the policy term and the investment option. This return varies between 101 and 140 per cent for Birla SunLife Insurance’s product; for HDFC Life Insurance, it is 101 per cent. However, in each of these cases, if the fund value is more than the guaranteed amount, you earn the fund value on maturity.
One per cent return for an investment term of 10 years or more for an aggressive investor ( equity investor) is too low. Equity funds can give much higher returns in the same period.
According to mutual fund rating agency Value Research, despite the poor market conditions, equity diversified funds gave about four per cent returns in the past five years. Even a five- year bank deposit gives higher assured returns of 8.50 per cent, along with tax benefits.
Conservative investors might find the debt investment option lucrative but through 10, 20 or 30 years, debt products like tax- free bonds and debt mutual funds would yield similar returns. Why, then, should you pay more than other long- term instruments and earn at par? Mumbai- based certified financial planner Gaurav Mashruwala says there isn’t much difference between earlier unit- linked pension plans and new ones, in terms of wealth accumulation.
Typically, financial planners do not recommend pension products for retirement planning. The retirementplanning instruments they favour are the Employees’ Provident Fund ( EPF), the Public Provident Fund ( PPF) and equity mutual funds. The charges by these pension plans are similar to unit- linked insurance plans but higher than those of other products. For instance, Birla SunLife Insurance levies a premium allocation charge of six per cent for the first three policy years. This is lowered by one per cent for the fourth and fifth years and fixed at four per cent from the sixth year. The annual fund management charge for equity funds is 1.35 per cent; for debt funds, it is one per cent. The policy administration charge is ₹ 20 for the first five years and ₹ 25 from the sixth year, which would rise five per cent every year, subject to a ceiling of ₹ 6,000. Also, there is an annual investment guarantee charge of 0.25 per cent of the fund value. Compare this to the expense ratio of mutual funds ( 0.50 to 2.75 per cent). And, PPF accounts can be opened for free.
Certified financial planner Kartik Jhaveri says the lock- in period is another drawback. Also, only athird of the amount is available on maturity. “ Instead, you can invest in an equity fund or a debt fund and time the income as you want. In case of an emergency, it is more difficult and expensive to withdraw from an insurance plan, against mutual funds or bank deposits,” he says. One can easily take a look at the 15- year returns data by equity funds. Even if unitlinked pension plans give higher returns through 10, 15 or 20 years, you may still choose other avenues, owing to lower lock- in periods, lower costs and higher liquidity.
For tax- saving, too, PPF/ EPF and equity funds are equally, if not more, tax- friendly. “By not choosing a pension plan, one would only compromise on tax saving; that, too, if it is required,” says Mashruwala.
Typically, if you are contributing towards PPF, EPF, a home loan and a child’s tuition fee, you may not need to save any taxes. The new pension norms mandate buying annuity from the same insurer.
If it is not the best offer, you are stuck with the same company. Jhaveri says pension plans are advisable only if one is invested in Life Insurance Corporation’s Jeevan Suraksha ( a traditional pension plan launched in 2000), which assures eight per cent returns, or if one is an indisciplined investor. Otherwise, avoid pension plans, he advises. With 50 per cent investment in equities, minimal fund management charges and average returns of nine per cent, the New Pension Scheme is another good option. One may also consider pension plans from mutual fund houses. One can receive the entire corpus on maturity and either put it in a savings account or buy annuity at the best offered rate.
Under the garb of non- zero guaranteed returns, insurers are offering a raw deal at higher costs AT A GLANCE
ICICI Pru Shubh Retirement HDFCLife Pension Super Plus Birla SunLife Empower Pension Plan
Entry age ( years) 35- 70 35- 65 25- 70 Policy term ( years) 10,15, 20, 25 and 30 10, 15, 20 10, 15, 20 Premium paying term 5 and 10 years Equal to policy term 5- 30 years Charges PAC( 1- 5 yrs) = 3%* PACfor10 years = 2.5%* PAC= 6%, 5%, 4% varying each yr FMC= 1.35% FMC= 1.35% FMC= 1.35% ( 1% fordebtfund) Policy Admin Fee = 0.30%# Policy Admin fee = 0.40 - 0.47%# Policy Admin fee = ₹ 20 to ₹ 25 Invstguarantee fee = 0.50%## Invstguarantee fee = 0.40%## Invstguarantee fee = 0.25%## Miscellaneous charge = ₹ 250 Miscellaneous charge = ₹ 250 Exposure to equity up to 75% up to 60% up to 100% Guaranteed 101- 195% of all premiums** Higherof fund value or101% of all premiums Higherof fund value or101- 140% of all maturity benefit paid till date ( including top- up premiums) premiums of premiums paid till date Guaranteed 101- 195% of all premiums** Higherof fund value orall premiums Higherof fund value or101% of all premiums death benefit at6% annually orpremiums accumulated at0.5- 3% annually
PAC = Premium allocation charge; FMC = Fund management charge; PPT = premium payment term; * Annual premium payment ; ** Depending on the investment option, policy term & premium payment term Source: Product Brochures
FinMin tightens grip on black money
New Delhi, 3 February
In order to check black money and tax evasion, an online databank is being set up by the finance ministry for effective coordination and dissemination of various inputs pertaining to illegal funds.
The online system, which would act as a databank for financial intelligence sleuths, is named Virtual Office. It will help in the monitoring of suspicious transaction reports (STRs) generated by the Financial Intelligence Unit- India ( FIU- Ind), an agency tasked with receiving, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and its foreign counterparts.
It will have a representative each from Central Board of Direct Taxes, Directorate General of Revenue Intelligence, Central Economic Intelligence Bureau, Directorate General of Central Excise Intelligence and FIU- Ind.
India has lost a whopping $123 billion in black money during the last decade, according to a report by a US- based research and advocacy organisation on ‘ Illicit Financial Flows from Developing Countries: 2001: 2010’.
As many as 13,871 STRs were disseminated by the FIU- Ind during financial year2011- 12.
Of these, 10,956 were passed on to CBDT, 1,615 to the Enforcement Directorate, 1,130 were shared with CBEC, DRI and DGCEI, 117 STRs with Securities and Exchange Board of India, 51 with Reserve Bank of India and two with Insurance Regulatory and Development Authority.
An STR is a transaction, of ₹ 10 lakh and above, which gives rise to a reasonable ground of suspicion that it may involve the proceeds of a crime through drug trafficking, gun running, and illegal imports and exports of goods.
DRT auction rule mandatory
The Supreme Court has ruled that the provision for deposit of 25 per cent of the purchase money in an auction sale under the Debt Recovery Act (DRT) is mandatory and the recovery officer cannot relax it. According to the law, if there is a default on this, the property shall be resold immediately. The court thus dismissed the appeal of the purchaser in the case, C N Paramasivan vs Sunrise Plaza, against the Madras High Court judgment. In this case, which was fought over two decades, the partners of a firm defaulted in repaying the loan advanced by Indian Bank. The property was sold in auction, which was challenged by the partners for violation of the rules. The debt recovery appellate tribunal held that the purchasers did not act bona fide and set aside the sale and asked the partners to deposit the entire loan amount. The buyer challenged that order, contending that the rule to deposit was not mandatory, but only directory. The high court rejected his petition, and the Supreme Court dismissed the appeal.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Customs tribunal order quashed
The Supreme Court has set aside the order of the Customs and Excise Appellate Tribunal upholding the levy of duty and penalty for the import of furnace oil by Uniworth Textiles Ltd. The company had argued that the demand was delayed and therefore not valid. The tribunal reasoned that since the company procured furnace oil not for its own captive plant but for a sister concern, it could not claim exemption from payment of duty. The Supreme Court stated that the tribunal was wrong and its conclusion that non- payment was equivalent to collusion or willful misstatement was untenable. It rejected the revenue authorities contention that the act of the company was willful and mala fide. It is a serious allegation requiring high order of credibility and the authorities have not discharged this burden of proof.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Forced to submit resignation
An employee of Atlas Cycle ( Haryana) Ltd, who was allegedly beaten up, given electric shocks and forced to write his resignation letter was ordered to be reinstated by the Punjab and Haryana High Court, and that order was upheld last week by the Supreme Court. The worker was in service since 1977 and his resignation without any acceptable reason and without any monetary incentive should be considered in context. He complained about the forcible resignation within a day and he wrote to the chief minister and others. However, these factors were not considered by the labour court and it dismissed his complaint. On appeal, the high court passed the order of reinstatement with 25 per cent back wages. The Supreme Court stated that since the labour court overlooked material evidence on record, the high court was justified in interfering with the finding of facts by the labour court.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Injunction set aside
The Bombay High Court last week set aside the order of interim relief granted by the arbitrator in the dispute between Moser Baer Entertainment Ltd and Goldmines Telefilms Ltd.
According to a three- year contract, Goldmines granted exclusive rights to Moser Baer to manufacture, record, copy, sell and distribute various films through DVDs, VDCs and all devices for the home video markets in the country. The dispute arose when Moser Baer complained that though Goldmines was required to deliver source material for 305 films it received material only for 51 films. The disputes were referred to arbitration and the arbitrator restrained Moser Baer from marketing VCDs, DVDs, etc until the final award. The high court stated that the arbitrator, at the preliminary stage itself, interpreted the terms of the contract and “finally concluded the rights and obligations of the party.” This kind of injunction was not permissible under the Arbitration and Conciliation Act, the high court said while asking the arbitrator to get on with the proceedings.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Scope of consumer complaint
The National Consumer Commission ruled last week that even if a work contract is terminated for breach of terms, a consumer complaint can be moved before it. In this case, Poonam Chambers vs Aluplex India Ltd, the former filed a complaint for recovery of damages for the work left unfinished by the latter. The contract was terminated and the work was got completed through other agencies. When Poonam Chambers moved the Maharashtra state consumer commission, it dismissed the complaint at admission stage on the ground that the contract was terminated earlier to filing of complaint. Hence, no relationship of consumer and service provider subsisted between the parties and there is no consumer dispute under Consumer Protection Act. On appeal, the national commission set aside the state commission’s judgment and stated that “once the parties entered into a contract to provide service and the latter stopped work, the aggrieved party is entitled to file claim on account of deficiency of service even after termination of contract. Merely by termination of work contract it cannot be inferred that there was no relationship of consumer and service provider between the parties.”



  1. Post is really very intereste and informative and i always appreciate the post which is full of its swing color. pension loan
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  2. Every thing has price my friend. If I'm not wrong, pension plans are in relationship with amount one invests in it per period.