Financial Management

Archive for the ‘Pension Plans’ Category

Sharing Plans are highly popular because they offer the employer the most flexibility when it comes to making contributions. Contributions may be determined by a predefined formula written into the plan or at the discretion of the board of directors or governing body. These contributions for example can be dependent on company profits or only at a minimum profit level. Plan contributions are generally allocated to employees as a percentage of compensation. The amount of benefits an employee will receive depends on many factors including: company’s profits, number of years an employee has participated, the investment performance of the plan, and the amounts forfeited by employees who leave before becoming entitled to the full value of their accounts.

Money-Purchase Plans generally require employers to contribute a specified percentage of each participating employee’s compensation, regardless of company profits. The employee’s retirement benefits therefore, is determined by the balance of their account. As with profit-sharing plans, the account balance depends on the employee’s years of service, the amount of contributions that they company has made and the investment performance.

Many companies offer a money-purchase plan in conjunction with a profit-sharing plan. What are the advantages of sponsoring two plans? One, the company may be able to make higher deductible contributions that it could with only a profit-sharing plan. Two, they’re not locked into making a high contribution when profits are low.

In addition to these two types of pension plans, there are also additional types such as Defined-Benefit Pension Plans, Simplified Employee Pensions (SEPs), Savings Incentive Match Plans (SIMPLE) and Employee Stock Ownership Plans (ESOPs). As a business owner, you probably have some idea of which type of plan you’d like to offer your employees. But how can you be sure that is the best plan for your company? Who should design the plan? How do you go about implementing a plan? What about securing IRS approval? Let your Lincoln Financial Advisor Representative assist you in implementing your Pension Plan.

You can pay additional premium in multiples of Rs.1,000 without any limit at anytime during the term of policy. Top-up shall not be allowed during the last 5 years of the contract. In case of yearly, half-yearly, quarterly or monthly (ECS) mode of premium payment such Top-up can be paid only if all premiums have been paid under the policy.

iv) Switching: You can switch between the two fund types during the policy term subject to switching charges, if any.

v) Partial Withdrawal: No partial withdrawal of units will be allowed under this plan.

vi) Revival: If due premium is not paid within the days of grace, a notice shall be sent to you within a period of fifteen days from the date of expiry of grace period to exercise the option for revival within a period of thirty days of receipt of such notice. If you exercise the option to revive the policy, then the arrears of premium without interest shall be required to be paid.

The Corporation reserves the right to accept the revival at its own terms or decline the revival of a policy.

Irrespective of what is stated above, if the Policyholder’s Fund Value is not sufficient to recover the charges during the notice period, the policy shall terminate and thereafter revival will not be allowed.

vii) Conversion to annuity: The benefit amount, payable in case of surrender or on discontinuance of premium or on vesting, shall compulsorily be utilized to provide an annuity subject to the following conditions:

1. You will have an option to commute upto a maximum of one third of the

a) Higher of Policyholder’s Fund Value and Guaranteed Maturity Proceeds, in the event of vesting, or
b) Proceeds of the discontinued policy, if policy is discontinued or surrendered within 5 years from the date of commencement of policy, or
c) Policyholder’s Fund Value, if policy is discontinued or surrendered after 5 years from the date of commencement of policy,
whichever is applicable.

The commutation will be allowed provided the balance amount is sufficient to purchase a minimum amount of annuity as per the provisions of section 4 of Insurance Act, 1938 as applicable on the date of payment of annuity.
The balance amount shall compulsorily be utilised to provide an annuity based on the then prevailing immediate annuity rates under the relevant annuity option.

If the policy is discontinued after 5 years from the date of commencement of the policy: If you exercise the option for complete withdrawal from the policy, or you do not exercise the option within the period of 30 days of receipt of notice, then the policy shall be compulsorily terminated and Policyholder’s Fund value will compulsorily be utilized to provide an annuity.

Method of calculation of Monetary amount and Proceeds of the Discontinued Policy:

The conversion to monetary amount shall be as under:
The NAV on the date of application for surrender or as on the date of discontinuance of the policy (in case of complete withdrawal of the policy), as the case may be, multiplied by the number of units in the Policyholder’s Fund Value as on that date will be the monetary amount.

The Proceeds of the Discontinued Policy shall be calculated as under:

• The monetary amount calculated as above shall be transferred to the Discontinued Policy Fund. This Fund will earn a minimum interest rate of 3.5% p.a. from the date of discontinuance of the policy to the date of completion of 5 years from the commencement of the policy. In case of death of the life assured, the interest shall accrue from the date of discontinuance of the policy to the date of booking of liability. The Proceeds of the discontinued policy shall be the monetary amount plus the interest accrued on the Discontinued Policy Fund.
• Guaranteed Maturity Proceeds: If all due premiums are paid till maturity, a guaranteed interest shall accrue on the gross premium, including Top-up premiums if any, at the end of each financial year. The guaranteed interest rate shall be 50 basis points above the average of the reverse repo rate prevailing as on the last working day of June, September, December and March of the preceding year. However, the guaranteed interest rate shall be subject to a maximum of 6% and a minimum of 3%. This guaranteed interest rate is not applicable to a discontinued policy.
• The minimum guaranteed rate of 4.5% p.a. is applicable to all premiums received up to 31st March, 2011, including any Top-up premiums paid.
• Guarantee of interest rate on Discontinued Policy Fund: A guaranteed minimum interest rate of 3.5% p.a. shall be credited to the Discontinued Policy Fund constituted by the fund value of all discontinued policies.

Right to revise charges: The Corporation reserves the right to revise all or any of the above charges except the premium allocation charge, with the prior approval of IRDA.
Although the charges are reviewable, they will be subject to the following maximum limit:

- Policy Administration Charge Rs. 60/- per month during the first policy year and Rs. 60/- per month escalating at 3% p.a. thereafter, throughout the term of the policy

- Fund Management Charge: The Maximum for each Fund will be as follows:

Debt Fund: 1.20% p.a. of Unit Fund
Mixed Fund: 1.30% p.a. of Unit Fund

- Switching Charge shall not exceed Rs. 200/- per switch.
- Miscellaneous Charge shall not exceed Rs. 100/- each time when an alteration is requested.

In case the policyholder does not agree with the revision of charges the policyholder shall have the option to withdraw the Policyholder’s fund value which shall be utilised to provide an annuity.
4. Discontinuance of Premiums: If you fail to pay premiums under the policy within the days of grace, a notice shall be sent to you within a period of fifteen days from the date of expiry of grace period to exercise one of the following options within a period of thirty days of receipt of such notice:

Revival of the policy, or
Complete withdrawal from the policy

During the notice period of 30 days, the policy shall be treated as in force till the date of discontinuance of the policy (i.e. till the date on which the intimation is received from the policyholder for complete withdrawal of the policy or till the expiry of the notice period) and the charges shall be taken, as usual.

If you do not exercise any option within the stipulated period of 30 days, you shall be deemed to have exercised the option of complete withdrawal from the policy.

There shall be no change in payments of benefits during the notice period.

The benefits payable when you exercise the option for complete withdrawal or you do not exercise any option during the notice period shall be as under:
If the policy is discontinued within 5 years from the date of commencement of the policy: If you exercise the option for complete withdrawal from the policy, or you do not exercise the option within the period of 30 days of receipt of notice, then the policy shall be compulsorily terminated. The Policyholder’s Fund Value as on the date of discontinuance of policy after deducting the Discontinuance Charge shall be converted into monetary terms as specified below and Proceeds of the discontinued policy as specified below will compulsorily be utilized to provide an annuity, and shall be payable after completion of 5 years from the date of commencement of the policy.

Why do I need Retirement Plans?

Retirement Plans provide you with financial security so that when your professional income starts to ebb, you can still live with pride without compromising on your living standards. By providing you a tool to accumulate and invest your savings, these plans give you a lump sum on retirement, which is then used to get regular income through an annuity plan. Given the high cost of living and rising inflation, employer pensions alone are not sufficient. Pension planning has therefore become critical today.

India’s average life expectancy is slated to increase to over 75 years by 2050 from the present level of close to 65 years. Life spans have been increasing due to better health and sanitation conditions in the country. However, the average number of years of employment has not been rising commensurately. The result is an increase in the number of post-retirement years. Accordingly, it has become necessary to ensure regular income for life after retirement, so that you can live with pride and enjoy your twilight years.

However, skyrocketing costs can throw even a well-laid plan off balance. With costs rising every day, you can just imagine how high they will be when you are ready to hang up your boots. So, what should you do to counter this? It’s time to plan your retirement and that too sooner than later.

The above illustration shows how with each passing year your annual savings requirement would increase. For instance, if you are 30 years old and plan to retire at 60, then, with a current annual expenditure of Rs. 3,00,000/- , you would need a corpus in excess of Rs. 2,00,00,000/- to maintain your living standards, assuming you live till 85 years and the inflation rate is 4%. To build this retirement corpus, you need to invest Rs 3,60,000/- per annum in a retirement plan that offers 8% returns per annum. In case you delay planning your retirement by 5 years then the investment amount would increase to Rs 6,90,000/- per annum.

A policy once surrendered cannot be reinstated.

Risks borne by the Policyholder:

LIC’s Pension Plus is a Unit Linked Life Insurance product which is different from the traditional insurance products and is subject to the risk factors.
The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions.
Life Insurance Corporation of India is only the name of the Insurance Company and LIC’s Pension Plus is only the name of the unit linked life insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer.
The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.
All benefits under the policy are also subject to the Tax Laws and other financial enactments as they exist from time to time.

Cooling off period:

• If you are not satisfied with the “Terms and Conditions” of the policy, you may return the policy to us within 15 days. The amount to be refunded in case the policy is returned within the cooling-off period shall be determined as under:
• Value of units in the Policyholder’s Fund
• Plus unallocated premium.

HDFC Personal Pension Plan

Today, you are busy climbing the ladder of success and realizing your dreams. Today, time is with you. Just take a moment and think. Will you be able to continue at the same pace? Will your income be the same forever? Will you be able to live life on your own terms even after you retire? The HDFC Personal Pension Plan is a ‘With Profits’ insurance policy that is designed to provide a post-retirement income for life with the freedom to choose your retirement date.

This plan is designed to provide you a post retirement income for life- You can choose your premium, the Sum Assured and your retirement date. At the end of the policy term, you will receive the Sum Assured plus any attaching bonuses, which will provide you a post retirement income in your golden years
On your chosen retirement (Vesting) date, you will get the lump sum comprising the Sum Assured plus any attaching bonus.
You can take up to 1/3rd of your Sum Assured as a tax free cash lump sum
The rest must be converted to annuity
You can buy the annuity from us or any other insurer
For Regular Premium Policy, you can choose to pay your premium as either Annually, Half-Yearly or Quarterly depending on your convenience. You also have a range of convenient auto premium payment options
Tax benefits under sections 80CCC of the Income Tax Act, 1961 subject to the provisions contained therein

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

LIC’s Pension Plus is a unit linked deferred pension plan, which provides you a minimum guarantee on the gross premiums paid. The plan is without any life cover.

You have a choice of investing your premiums in one of the two types of investment funds available. Premiums paid after deduction of allocation charge will purchase units of the Fund type chosen. The Unit Fund is subject to various charges and value of units may increase or decrease, depending on the Net Asset Value (NAV).

1. Payment of Premiums: You may pay premiums regularly at yearly, half-yearly or quarterly or monthly (through ECS mode only) intervals over the term of the policy. Alternatively, a Single premium can be paid.

A grace period of 30 days will be allowed for payment of yearly or half-yearly or quarterly premiums and 15 days for monthly (through ECS) premiums.

2 . Eligibility Conditions And Other Restrictions:
a) Minimum Entry Age – 18 years (last birthday)
b) Maximum Entry Age – 75 years (nearest birthday)
c) Minimum Vesting Age – 40 years (completed)
d) Maximum Vesting Age – 85 years (nearest birthday)
e) Minimum Deferment Term – 10 years
f) Sum Assured – NIL
g) Minimum Premium -
Regular premium (other than monthly (ECS) mode) : Rs. [15,000] p.a.
Regular premium (for monthly (ECS) mode) : Rs. [1,500] p.m.
Single premium: Rs. [30,000]
h) Maximum Premium -
Regular premium : Rs. [1,00,000] p.a.
Single premium: No Limit

Annualized Premiums shall be payable in multiple of Rs. 1,000 for other than ECS monthly. For monthly (ECS), the premium shall be in multiples of Rs. 250/-.

In so many ways of doing business is to do the planning. However, sometimes often overlooked is how the financial plan for your own retirement. It is very important. With a mature pension plan then you will be better able to face old age with better conditions.

We learned a lot during the life how to act. We can determine the short-term goals and long term needs with respect to what we have. Do you feel the need to find a way to send you on campus, home repair, or method of the tab so you can get information and help from what you are planning.

You can use a good financial consultant to find a balance so many people who could be helped. We can use their service to their retirement financial plan early on. Do not let us have done the planning so that we regret later. This can take the form of regret because we lack the resources and financial resources needed to meet the needs of decent living.

In this case we need to invest for retirement later. However, the investment must be considered the risks that will arise. The use of financial planning services will assist you in making the most appropriate choice. You can plan their finances to health and the business that you will live.

PROSPEROUS LIVING, HEALTHY, FREE OF PECUNIARY the days RETIREMENT, THAT IT BE ?

That is written behind the book which I bought it. I am indeed not the right person if you want to ask about the pension or retirement, because my life experiences of retired defeated by Mr and Mrs (all readers), the only experience that I experienced is retired, watching my grandfather retired from his job as a junior high school principal Weleri country.

I’m also not the right person for you to ask about good writing, because to be honest, I never write special education. But maybe I’m the right person if you want to ask about the book, and I also have the ability to tell people that (I think) a little better (I emphasize once again: Just a little) from the average.

This time, do not call my writing as a reviewer, because it is a far cry from the reviewer. But not too short, or even just pepesan empty. I hope this article can be a bit to give an idea of the book that I bought some time ago.