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Attractive Polices come with High Expenses

The Max Life Forever Young Pension Plan is an expensive policy with charges up to 7.97 per cent for the first 5 years

I am a 52-year-old private sector employee. I have recently bought the Max Life Forever Young Pension Plan to avail pension benefits after retirement. I want to know about the performance of this pension plan. Have I taken the right decision? - G. Anand Ramachandra Rao

This is a pension plan which aims to accumulate your investments until the vesting age and then provide you with an annuity for lifetime. Else, it is designed to return the purchase amount to the nominee in case of the unfortunate death of the purchaser. This is an expensive policy. As per the charges mentioned in policy leaflet, you would end up paying around 7.77% or 7.97% annually for the initial five years. The charges will reduce a bit after completion of fifth year.

Most of the investors get swayed by the guaranteed maturity benefit offered under this policy. But there is no free lunch. The plan charges additional costs for providing this guarantee at rate of 0.20% p.a. or 0.40% p.a. for investments in the Pension Preserver or Pension Maximizer fund respectively.

A riskier, but better return earning alternative could be to invest in large equity funds and shift gradually into debt as your retirement nears. This way you would probably earn inflation beating returns and pay lower expenses. To ensure regular income you could buy an immediate annuity policy at the time when you feel you need regular cash flows, with the proceeds of this investment.

The policy does provide an option to surrender but in case of surrender or discontinuance, you cannot withdraw the corpus. This is a deal-breaker. You will necessarily need to exercise any one of the options given below:
(a.) commute a lump sum amount, to the extent allowed under the prevailing laws, including the Income Tax Act and utilize the balance proceeds of the Surrender Value to purchase an immediate annuity plan from the insurer at prevailing annuity rates; or
(b.) utilize the entire proceeds to purchase a single premium deferred pension accumulation plan from the insurer.

You may go with option 'a' as it will at least let you take out 1/3rd of the accumulated corpus and remaining can be received in form of annuity. Simultaneously start investing into well rated mutual funds as explained earlier.

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