Retirement Planning is one of the main aspects of Personal Financial Planning. Once you plan for your insurances (life / non-life), planning for your retirement should be your next high priority financial goal.
With the break-up of the joint family system in India, increase in longevity (life expectancy) due to advanced medical innovations, shorter work-span and lower job security; ‘Retirement Planning’ assumes greater importance.
HDFC Life Click 2 Retire plan is a newly launched ULIP based Retirement plan (pension plan). As per HDFC Life, this new online Unit Linked Plan offers market linked returns, with minimum charges and helps an investor to achieve Retirement goal by planning well in advance.
So, does HDFC Life’s Click 2 Retire is a good pension plan? Let’s discuss..
In this post let us understand – What is Retirement Planning? What are the key features of HDFC Click 2 Retire plan? How does HDFC’s Click2Retire plan work? Should you invest in HDFC Life Click 2 Retire online ULIP plan? Should you buy HDFC Click 2 Retire plan for your retirement?
What is Retirement Planning?
Retirement Planning refers to the allocation of savings or revenue for your retirement. It is a savings and investment plan that provides you income during retirement. The various Stages of Retirement Planning are;
- Accumulation phase – During this phase, you save and invest for your retirement. This is the stage where you invest to generate a decent corpus which is assumed to take care of you / your family during retirement. The earlier the accumulation period is in your life, the more advantages you will have (like the power of compounding).
- Transition to Retirement – This is an individual’s transition from work into retirement.
- Withdrawal phase / Wealth Consumption– In this phase, the retiree withdraws the income from the accumulated fund (Retirement fund / corpus) and enjoys the retired life.
Key Features of HDFC Life Click 2 Retire Online Pension Plan
HDFC Life is promoting this product as an ‘online ULIP (Unit Linked Insurance Plan) for Retirement. Its features are as below;
- Click 2 Retire is an online Pension plan.
- Minimum Entry Age : 18 years
- Maximum Entry Age : 65 years
- Minimum Vesting Age : 45 years
- Maximum Vesting Age : 75 years
- Premium Payment Term (PPT) & Policy Tenure :
- For Single Pay the Policy tenure options are 10 or 15 to 35 years.
- For 8 years PPT, policy tenure can be 10 or 15 to 35 years.
- For 10 years PPT, policy tenure can be 10 or 15 to 35 years.
- For 15 years PPT, policy tenure can be 15 to 35 years. (Note that 11 to 14 years as policy tenure is not allowed)
- Minimum Premium amount: Rs 24,000 p.a.
- Maximum Premium amount : No limit
- Death Benefit: Nominee will get higher of the Fund Value of policy (at the time of policy holder’s death) or 105% of premiums paid till then.
- Vesting Benefit (Maturity Benefit) : Your policy vests at the end of policy term. The maturity benefit will be higher of Fund value as on maturity date (or) Assured Vesting Benefit. (Assured Vesting Benefit can be calculated as:
[101% +1% * (Policy Term minus Premium Paying Term)] * Total premiums paid)
- The vesting date can be deferred (postponed). You can postpone the vesting date any number of times subject to the maximum vesting age of 75 years, provided you are below an age of 55 years.
- On maturity, you can withdraw up to 1/3rd of Fund Value as commuted pension. As per current tax laws, this is considered as a tax-free income. For the balance amount, you have to buy an ‘ANNUITY PLAN’ from HDFC Life. Based on the then prevailing annuity rates, you will receive guaranteed regular pension for life.
- Surrender value: If you surrender after completion of the 5 years from commencement of the policy your fund value will be paid out.
- This plan does not offer any life cover; hence no mortality charges are applicable.
- No Premium Allocation Charges. 100% of your premiums are invested.
- Fund Management Charge : 1.35% p.a. of the Fund Value.
- Fund options: Pension Equity Plus Fund or Pension Income Fund or Pension Conservative Fund. (Click on the image to open it in a new browser window)
- Income Tax Benefits: Premiums paid towards HDFC’s Click 2 Retire plan can be claimed as tax deductions u/s 80c.
How HDFC Click2Retire Plan works? An Illustration (Example)
To buy Click 2 Retire plan, you need to know your ‘Projected Retirement corpus‘ or you can calculate the retirement corpus based on the ‘Premium‘ that you can afford. (You may also use our ‘Retirement Calculator‘ to know your required Retirement corpus)
HDFC Life website provides you an online facility to do these calculations. (You may visit HDFC Life’s website by clicking on the below image. Suggest you to provide some dummy mobile number to get the calculation details.)
Through the above calculations you can know the projected retirement corpus (based on assumed rate of return) and the premium that you have to pay. Do note that this plan provides you Limited Premium Payment Term options as discussed in the features. So, the policy term and PPT can be different.
I have tried to explain how HDFC Click 2 Retire plan works with the below info-graphic.
- Death Benefit is available from policy commencement age till policy vesting (maturity) date. (What is Vesting age ? – The age at which you choose to start receiving pension)
- Based on your Fund selection (Equity / Income / Conservative), your fund value will grow during the policy term or accumulation phase.
- On your Vesting date, you can withdraw up to 1/3rd of Fund Value. This is your tax-free income. For the remaining amount you have to buy an Annuity Plan with HDFC Life. Your corpus amount will be re-invested by HDFC Life based. You will receive periodic Pension / annuities for life based on the annuity rates prevailing during that time. (What is annuity? – Regular monthly pension payable to you after you cross the vesting age)
- If you do not want to withdraw 1/3 rd amount, you can buy an Annuity plan from HDFC Life with the entire Fund Value that is accumulated on the policy maturity date (vesting date). You will then start receiving annuities during the withdrawal phase.
My Opinion on HDFC Life Click 2 Retire Insurance plan
The main issue with ULIPs is ‘Charges’. But Click2Retire plan’s claims that the charges are minimal. Since this is an online based plan, no intermediaries are involved, hence minimal charges are levied.
- Firstly, if you are looking for ‘Life insurance cover’ (Protection) then this plan is not for you. Instead, consider buying a best Term insurance plan .
- ULIPs can generate decent returns if held for long-term, say more than 10 years or till the maturity. But, to generate investment returns, where does ULIP scheme invest? Obviously, the fund has to invest in Stock markets (indirectly). If ULIP is investing in stocks through funds, then why not invest in mutual funds directly? Do think about this point 🙂
- You should not invest in ULIPs or Retirement plan with a short-term view.
- To get better investment returns, the charges levied by the scheme or fund should be minimum and reasonable. If you compare the charges between ULIP scheme and mutual funds, ULIPs charges are generally on a higher side.
- In case, if your investment objective is long-term wealth accumulation and tax saving, you may buy ELSS Funds.
- Do note that liquidity is very high in case of Mutual Funds.
- HDFC Life click 2 retire may provide guaranteed benefit on Vesting date. But, remember you are investing for long-term, you got to take risk and can not just invest based only on this premise.
- On Policy maturity date, you have to buy an Annuity plan from HDFC Life. You have to invest the Fund value with them and they will pay you life-long pension. Kindly remember that the pension amount is dependent on the annuity rates. The current prevailing annuity rates are very low (in the range of 5% to 7%). (What is annuity rate? – In return for a lump sum; the money you have saved in your pension pot, an annuity provider (insurance company) will give you an annual income for the rest of your life)
- So, low annuity rates (pension rates) may not beat inflation.
- I personally believe that it is like you accumulate wealth and lose all the wealth to Annuity Plan Provider.
- Also, Annuity income is taxable (as per current tax laws) under the head ‘income from other sources’. Why do you want to receive an income which is chargeable to tax during your ‘retirement age’?
Under HDFC Click 2 Retire plan you are forced to buy annuity at the time you retire, which may or may not be favorable to you . You are locked for life.
There is no doubt that you need to plan for your retirement. But, you may do it with investment products which are more flexible, transparent, simple and easy to understand. If I have to invest for my Retirement, I will give it a miss.
I hope you find this post informative. Do share your views on HDFC’s Click 2 Retire plan.
(This post is for information purposes only. ReLakhs.com is not associated with HDFC Life.)