Secure Plus Pension MDU, July 2003. Who is this target consumer? Consumer base, that relates more to...

Secure Plus Pension

MDU, July 2003

Who is this target consumer?

Consumer base, that relates more to traditional kind of products….

Consumers who do not venture into Unit Linked Insurance, because,

It may not be affordable right now.They may not have enough financial maturity to buy Linked Plans.

Consumers, who would like to take the benefit of Sec80CCC(1) by investing in traditional pension plans.

What can we offer them?

Choice of Death Benefit (choosing a ZERO Sum Assured); ease of purchase.

Policy accumulation like the traditional pension products.Choice of Annuity options on Vesting.

Choice of Annuity Provider (OMO)

Choice of deciding the vesting age.

Presenting SecurePlus Pension

Secure Plus Pension

A) Death Benefit

Two Option(i) Zero Death Benefit(ii) With Death Benefit

With Death BenefitSum Assured = Annual Premium* A factor of Term

Level of Sum Assured

Amount of SA

Basic

Annual Prem*(Term-5)

Standard

Annual Prem* Term

Enhanced

Annual Prem*(Term+5)

Secure Plus Pension

A) Death Benefit

What is the benefit payable on death?

On death , the chosen Sum Assured and Accumulated Value of Policy till that time is paid to the nominee as a lump sum or an annuity.

Chosen Sum Assured (A)

Accumulated Policy Value

(B)

Death Benefit (A+B)

Secure Plus Pension

B) Policy Value and Accumulations

Concept of Bonus InterestA rate declared at the end of every financial year for the policies written in that year and before.

It is applied on the amount of premium which is invested after taking all the expenses out of the premium.

The Bonus Interest would have a compounding effect.

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Start of Year 1

End of year 1

End of year 2

Bonus Interest Credit= x%

Bonus Interest Credit= y%

Invested Premium = a Invested Premium = b

Policy Value at the end of Year

1= a (1+x%)

Policy Value at the end of Year 2= [a (1+x%)

+b]*(1+y%)


How does the Bonus Interest credit work?

Secure Plus Pension

Start of Year 1

End of year 1

End of year 2

Bonus Interest Credit= 5%

Bonus Interest Credit= 6%

Invested Premium = 10000

Invested Premium = 10000

Policy Value at the end of Year

1= 10000*(1+5%)=

10,500

Policy Value at the end of Year 2=

[10500+10000]*(1+6%)=21730


How does the Bonus Interest credit work?

Secure Plus Pension


What is the guarantee in this product?

All the additions made along with the allocated premiums are guaranteed.

That is , once a bonus interest credit is declared, it remains in the kitty, the accumulated amount cannot decrease.

So, for example in the previous slide, the amount a(1+x%) remains guaranteed once declared and cannot decrease.

Secure Plus Pension


Invested premiums with bonus interest credited till that time would be paid.

However, if the value of the investment account of the policyholder is more, then the additional amount would also be paid.

Secure Plus Pension

C) Vesting Options

Option to choose a vesting age between 50 & 75.

Option to defer the vesting age.

At vesting, the accumulated policy value is used to buy an annuity for the policy holder

Commutation Allowed – upto 33 1/3%

Secure Plus Pension

Annuity Option

Life Annuity Life Annuity with return of purchase price Life Annuity guaranteed for 5,10 or 15 years Joint Life, Last Survivor with return of purchase price Joint Life, Last Survivor without return of purchase

price

Surrender ValueSurrender Value would be applicable after 3 years’ premiums has been paid. A surrender value factor would be applied to the policy value to calculate surrender value

Secure Plus Pension

Open Market Option

Riders ADBR ABR CI MSAR WOP

Secure Plus Pension

Boundary Conditions

Minimum Premium limits

Min MaxAge Limits-With Life Cover 18 60

Age Limits-Without Life Cover 18 65Age at vesting 50 75

Min PremiumYearly 10000

Half Yearly 5000Monthly 834

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Charge Structure

Year Allocated Premium1st yr 65%2nd &3rd yr 85%4th yr onwards 95%

Premium Allocation

There is a fixed charge of Rs300 per annum.

The investment charge is 1.25% of the fund value.

Comparisons

FeaturesHDFC

Pension

MNYL Easylife Pension Nirvana

OM Kotak RIP

SBI Life Pension

SecureLife Pension

Premium Holiday

Not Avialable

Not Avialable

Not Available Available

Available after 10 years

Not Available

Life Cover Option

Not Avialable

Not Avialable

No Zero Life cover

option avialable Available Available

No Zero Life cover option

avialableAnnuity Options 3 4

Not Available 4 4 5

Comparisons

FeaturesHDFC

Pension


OM Kotak RIP

SBI Life Pension

SecureLife Pension

Death Benefit

Premium Paid+8% Simple

interest as a lumpsum or annuity

1st year - premiums paid back without interest

2nd year onwards - Premiums

+ 3% interest pa

as a lumpsum or annuity

Sum Assured+Guaranteed

Additions+Bonuses as a lumpsum or annuity

Value of units + value of

term rider chosen.Compulsary annuity for beneficiary

Value of units

+Term cover as a

lumpsum or annuity

Policy Value as a lump sum or annuity for the spouse. In case the spouse is not there then the lump sum for the beneficiary

Surrender Charges

With surrender Penalty

Guaranteed Surrender value of 55% of

premiums paid after

the 1st policy year

With surrender penalty

Value of fund

With surrender Penalty

Surrender penalty to be charged on the policy value

Comparisons

FeaturesHDFC

Pension


OM Kotak RIP

SBI Life Pension

SecureLife Pension

Increase/Decrease Death Benefit

Not Available

Not Available

Not Available

Not available

Not Available Available

Increase in contribution

Not Available

Not Available

Not Available Available Available Available

Open Market Option Available Available N/A

Not available Available Available

Riders Available AvailableNot

Available AvailableNot

available Available

Tied Annuities- Existing Structure4 Annuity Options:

Life Annuity, Life Annuity with Return of Purchase Price, Life Annuity with Guaranty of 5/10/15 years, Joint Life Annuity with Return of Purchase Price.

How do they work?

The purchase price at the time of vesting is used to buy an annuity, that would continue for the life of the annuitant or the spouse as the case may be.

What is the Annuity Rate applicable?

Rate existing as on the date of vesting.

Tied Annuities- New Structure

The new annuity structure will also have primarily 5 types:-

Life Annuity with return of Purchase PriceLife Annuity without Return of Purchase PriceJoint Life Annuity with return of Purchase PriceJoint Life Annuity without return of Purchase PriceLife Annuity guaranteed for 5,10 or 15 years

Life Annuity with return of Purchase Price

Stays the same as the earlier structure but with new rates

Life Annuity without return of Purchase Price

The purchase price at the time of vesting would be used to buy an annuity, that would be guaranteed for 5 or 7 years as chosen by the policyholder, at the time of vesting.

After the period (5 or 7 years), the annuity rates would be repriced for another period (5 or 7 years), and the new annuity rates would be applied to the outstanding capital at that time (which would be the purchase price then), to calculate the annuity payable for the next period.

This process would keep continuing every 5 or 7 years.

Joint Life Annuity with return of Purchase Price



This process would keep continuing every 5 or 7 years. In case of death of the annuitant the same amount of

annuity will be provided to the spouse In this option there is a miniscule difference in the

initial purchase price and the outstanding capital at the end of the 5 or 7 years

Joint Life Annuity with return of Purchase Price



This process would keep continuing every 5 or 7 years.

In case of death of the annuitant the same amount of annuity will be provided to the spouse

Life annuity guaranteed for 5, 10 or 15 years

The purchase price will be used to buy an annuity that is guaranteed for 5, 10 or 15 years.

In case the person outlives the term, he would continued to be paid what he was getting earlier, thus translating itself to a life annuity without return of purchase price

The above is subject to an annuity rate revision every 5 or 7 years and the annuity after the rate revision would be based on the outstanding capital.


An Illustration

Start of the

Annuity

Purchase Price=

5,00,000Annuity Rate=

Rs10,000/000 of annuity

Annuity Payable= Rs50,000

Repricing the

annuity

Residual Purchase

Price= 4,00,000Annuity Rate=

Rs20,000/000 of annuity Annuity

Payable= Rs20,000

5/7 yrs.


How do they work?….Continued

The residual purchase price at the end of the period would be known at the time of entering the annuity.

So for example, the initial purchase price is Rs5,00,000 and the person goes for a 7 year guaranteed period annuity, then the person would know the residual purchase price at the end of 7 years, say Rs 3,00,000 and this would be guaranteed.

At end of every period (at the time of resetting), the policyholder would have an OMO, with the residual purchase price.

So, in the above example, after 7 years, the policyholder would have Rs3,00,000 guaranteed as residual purchase price, which can be used to buy annuity from other players.


How do they work?….Continued

The residual purchase price at the end of the period cannot be paid as lumpsum, and has to be used either to buy an annuity from us or from any other annuity player.

In case OMO is used at the time of resetting, 1% of the residual purchase price would be levied as a charge.

So, in the example in the previous slide, after 7 years, the policyholder would have Rs3,00,000 guaranteed as residual purchase price, which can be used to buy annuity from other players. In case the policyholder uses OMO, he will have to bear a cost of Rs3,000.


Some Other Features

In case the annuitant has lived till 75 years of age, there would not be any more resetting, and the last reset annuity would continue for his life.

Frequency of Annuity: Annual, Half-Yearly, Quarterly or Monthly.

Tied Annuities- New StructureHow is the new structure beneficial to the customer?

•It helps the to not get locked in at a very low rate when inflation might make it difficult for him to survive.

•It helps the customer to reap the benefits of any favourable market movements

•The logic of accumulating for a pension is not estate creation but providing for the golden years. Therefore a person will look to use up all that he had accumulated for the same rather than living on interest and leaving the purchase price for the heirs. Therefore without return of purchase price seems to be a better option. Moreover, if the capital outstanding at the end of the 5 or the 7 years is lesser than the purchase price, all it means is that part of the purchase price or the initial capital has been used up to pay an annuity rather than paying the customer annuity which is just the interest generated on the purchase price

Secure Plus Pension MDU, July 2003. Who is this target consumer? Consumer base, that relates more to...

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