PENSION PLANS

Pension plans from insurance companies do not enjoy the same tax benefits as the NPS.

The additional deduction of `50,000 under Sec 80CCD(1b) is reserved exclusively for the government-promoted pension scheme. But pension fund managers dismiss the charge that this is an unfair advantage. The retirement funds from mutual funds are not really pension products. And the cost structure of pension plans from insurance companies is not very favourable to buyers. The NPS is the only true low-cost pension product.

To be sure, pension plans still have very high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. For instance, if a a 60-year-old man invests `10 lakh, LIC will give him `7,792 per month for life.

The pension plans launched by mutual funds have lower charges, but these are actually mutual funds disguised as pension plans. Moreover, they are debt-oriented plans so they are not eligible for the tax benefits that equity plans enjoy. ELSS funds will be better alternatives to these plans.