SBI Pension Plan

POSTED BY Venkatesh ON November 20, 2011 5:29 pm COMMENTS (3)

Hi Friends,

I have been investing in SBI Pension Policy Plan B since 2004. I have opted to Rs. 10K annually, for 18 years term.

As per the information provided during the time I chose the policy, I was told that the corpus would grow to about 293K at the end of the term. I intend to leave the money to grow with them for the next 10 years and then plan to take pension.

As per the agent’s calculation, I am told that the monthly pension would be about 4.2K per month. I wanted to know if this estimation is reliable?

I also was told that I could inject additional sum in the premium period. I am planning to inject some funds in the next few months, considering this to be a debt instrument. I would like to make lumpsum injections often, which would enable me to put up a corpus, to get me a monthly pension of about 7.5K, from this investment instrument.

Is this a good thought? Appreciate your responses.

3 replies on this article “SBI Pension Plan”

  1. ashal jauhari says:
    November 20, 2011 at 11:22 pm

    Dear Venkatesh, Now the basic calculation done by your agent or Ins. co. is clear to me. Please do note, how much pension ‘ll you get in future (after accumulation phase is over) depends little on the prem. paid yly but depend heavily on the corpus created by these yly investments.

    In Simple words – Bigger the corpus, better ‘ll be the pension amount. Regarding your thinking of injecting some extra amount to your retirement kitty is a wise move but investing in this pension plan is not a wise choice.

    You said – 2028 is the target year from where you ‘ll start receiving pension which is some 16Y away. For such a long period, you may invest in pure Eq. funds or hybrid Eq.funds depending upon your risk taking abilities.

    Also 8% return rate for both phases – accumulation as well as disbursal seems high & that too in the year 2028. Please do remember the big Daddy LIC can’t provide such high returns.

    Your take. I ‘ll wait for your reply.

    Thanks

    Ashal

    Reply
  2. ashal jauhari says:
    November 20, 2011 at 6:18 pm

    Dear Venkatesh, please clarify that my understanding is correct for your query.

    You ‘ll invest 10K yly till 2021, the corpus ‘ll be 2.93L Rs. in 2022. You ‘ll not touch it for next 10Y i.e. 2032. From 2032 you ‘ll get pension of 4.2K Rs. mly.

    If my understanding is correct. The XIRR of your pension plan till 2022 comes out around 4.91%. Neither good nor bad, considering the fact that it’s an outright debt product. For same 4.91%, the corpus ‘ll be 4.73L Rs. in 2032. Getting 4.2K mly from this corpus in 2032, translates into a return rate of 10.5% which is not possible even for big daddy LIC.

    I’m not sure, how do you arrive at the 7500 Rs. mly figure for your pension, but I do want to indicate the impact of inflation over next 20Y or so till 2032. @ 9% inflation rate, 7500 Rs. in 2032 ‘ll have same value what 1133 Rs. can purchase now in 2011 (read 2012 as 2011 is about to close) & with every passing year, the value of 7500 Rs. ‘ll keep going down & down.

    Think over it. I’ll wait for your reply.

    Thanks

    Ashal

    Reply
    1. Venkatesh says:
      November 20, 2011 at 6:45 pm

      Dear Ashal,

      Thanks for your response. Appreciate it.

      I started to invest in 2004, and would pay till 2018 (15 years term). Considering at 8% return p.a., the insurance company projected that corpus at end of 2018 woudl be Rs. 293242.83

      I will be stopping to make the payments in 2018 and park the corpus to allow it to grow for the 10 years. Based on 8% returns, the projected corpus in Year 2028 would be Rs. 633089.28.

      Projecting that the 6.3lacs would generate interest at 8% p.a., the pension per year was calculated as 50467.14, if this is withdrawn on a monthly basis, the monthly pension amount would be 4230.00. This is the calculation provided by the insurance company. Is this calculation right, was my question.

      During the time I started this investment, I could only put in 10K per year. Now I know that 4.2K is not a very good amount for monthly pension in the Year 2028.. Since the insurance company mentioned that I can inject additional money into it, I thought about the idea of getting more monthly pension (to the tune of atleast 7.5K, based on the above calculations). Also considering that it would be wise to invest in the debt market, in the prevailing market conditions.

      Now since I see some surplus cash coming my way, I thought of pumping in additional money, to help myself to get more pension, in this debt instrument. It was my guess to make few injections over the next few years, to increase the pension receivable from 4.2K till about 7.5K.

      Hope this is more clear. Can I receive your views? Thanks.

      Reply

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