Tuesday, November 24, 2015

Is HDFC Life Click 2 Retire Pension Plan – A Worthy Investment?

In one of the previous articles, I had explained everything about the Click 2 Retire Pension Plan from HDFC Life. Now that you know all the details, it is time for me to share my views on the product. After all, you can actually find most of the info that I listed out in the previous article in the product’s brochure or pamphlet.

Just to Recap, HDFC Life Click 2 Retire is a Unit Linked Insurance Plan that is aimed at helping individuals accumulate a corpus for their Retirement Life that would guarantee a Steady Pension for their golden years. The purpose of this article is to review the plus points as well as minus points of this product. 

Plus Points of the Click 2 Retire Pension Plan

There are many good things about this product. Let’s review them one by one.

Reason 1: Easy to Use – Online Application Process

In this day and age where people want to spend more time with their families and less time at banks & insurance companies. Any product that offers an easy online application and sign-up process is always a great choice for customers…

Reason 2: A Good Choice for Regular Pension during Retirement

India is one of those countries that does not have a robust Social Security System. A Recent Study conducted by Mercer Corp, actually analysed the Pension Schemes & options available in various countries across the Globe and guess where India Ranked? Our Index score was 40.3 out of 100. The Analysis from Mercer mentioned our system as “A System that has some Desirable features, but also has Major Weaknesses and/or Omissions that need to be addressed. Without these Improvements, its efficacy and sustainability are in Doubt”

Except the Employee Provident Fund and Employee Pension Scheme that is available only for salaried employees of registered companies, we have nothing else. The National Pension Scheme hasn’t gained much traction and we still have a long way to go until our Retirement or Pension System is good enough. So, I would say this analysis by Mercer is quite accurate…

At the end of the day, it is up to the citizens of this country to set up enough financial avenues for their retirement years. This Click 2 Retire is a good product for people to save money regularly and eventually save up a Nest Egg that can generate regular pension for Retirement.

Reason 3: Guaranteed Maturity Benefits

One of the biggest complaints about ULIP Plans so far has been the fact that, agents and advisors put up fancy earnings projections with 12% or 15% rate of returns and convince investors that the product is some awesome deal. In reality, most such products were high priced and haven’t been able to generate even decent returns for its investors. One of the key highlights of this plan is the fact that, HDFC Life Guarantees the Minimum Amount you will receive when your investment matures. If your fund has performed well, obviously you will get a much higher amount but at least the downside is guaranteed which is a Good thing because – we Indians as a group are a very Risk Averse bunch and prefer Guarantees than Uncertainties…

Reason 4: Low Fee Structure

I have reviewed quite a few ULIP Products in the past few years in blog as well as my books and to be honest with you, this plan is one of the few plans where the fees are quite reasonable. If you go back to the article that explains the features of the HDFC Click 2 Retire Plan, you will see that there is a Fund Management Charge of 1.35% and an Investment Guarantee charge of either 0.1% or 0.5% which means, the overall fees you will end up paying will be between 1.5% to 2% which is quite reasonable.

Reason 5: Tax Benefits

Actually speaking, I shouldn’t be adding Tax Benefits as a plus-point here because almost all ULIP Plans available in the market these days actually offer tax benefits. But still, truth be told, by investing in this product, you are going to reduce your tax liability every year which again is a Plus Point, isn’t it?

Reason 6: Planned Equity Exposure

I have been a strong supporter of Equity Investments for long-term financial planning by considering the earning potential Equities has over a period of many years. At the same time, Equity markets can be unpredictable in the near term and if you stay with a heavy Equity Exposure towards the end of your investment tenure, you may lose out a lot due to short-term volatility. This Click 2 Retire Plan starts off with a substantial Equity allocation and years go by, the % allocation towards Equity is gradually reduced. Towards the end of your investment, the fund aims to preserve the corpus you have accumulated so far which again is a Plus Point.

Minus Points of the Click 2 Retire Pension Plan

As with any investment product, there are two sides of the coin. We just covered all the plus points of this product and it is only fair if we cover the negatives, isn’t it?

Reason 1: No Flexibility to Choose Investment Options

Though this plan has an investment philosophy where they start off with a high Equity exposure and move on towards Safer options as time goes by, the limitation that the customer doesn’t have the flexibility to choose where he wants his money. Let’s say, after 10 years, if I wanted to have a higher Equity Exposure and am willing to bear the risk, the product wouldn’t allow me.
Yes, moving towards Fixed Income options towards the end will help protect my Nest Egg but, it wouldn’t help my Egg grow much wouldn’t it?

Reason 2: No Insurance Coverage

Though the term ULIP Actually refers to a Unit Linked Insurance Plan, this product is actually a Pension Plan and has No Insurance Coverage. In case the policy holder dies during the policy duration, his family will get the higher of either the Fund Value or 105% of the Premiums paid so far. Though the value of the deceased investor’s investment or 105% of the money paid as premiums is available to his/her family the point here is that, that’s all they get. Most ULIP Products in the market actually offer Insurance Coverage and suggest a “Sum Assured” when the investment starts. This Sum Assured is paid out in the event of the unfortunate death of the policy holder.

The absence of such an option could be a Big Minus Point for this product.

Of course, to be clear, this isn’t an Insurance Product. Rather, this is more an Investment Product aimed at building a Nest Egg by means of regular investments at low cost. Providing Insurance Coverage basically means the Insurance Company bears some risk and the fees are passed on to the customers. Considering the fact that the customer isn’t being charged hefty fees just to provide Insurance Coverage, this wouldn’t be considered such a Big Minus Point.
Still, a Minus Point is a Minus Point…

Reason 3: Limited Withdrawal Options @ Maturity

Per the policy features, at maturity there are only three proper options – A customer withdraws up to 1/3rd of the maturity proceeds and buys an Annuity product for the remaining or buys an Annuity product for the entire Amount or buy a Single Premium Deferred Pension Plan.

This basically means, if for some unforeseen circumstances, I need the money when I retire, I cannot get my hands on my money and have to settle for a Monthly Pension through my Annuity or the Deferred Pension Plan.

Yes, the purpose of this plan is to provide a regular pension post retirement but, I would’ve preferred to have an option wherein as a customer, I have the option to withdraw my full corpus even if it means I pay a small fee.

So, this is one more Big Minus Point on this product.

Note: At the time of maturity, customers who are below 55 years of age can actually defer the maturity date and extend the product for a few more years. This option hasn’t been considered as a withdrawal option for this point because that is basically just an extension of the policy tenure and after the extended tenure, the withdrawal options are pretty much the same as they were before the extension.

Reason 4: Limited Annuity/Pension Options

Another important point about access to our investment at the end of the policy term or at Surrender is the fact that, the customer has No Choice but to Purchase the Annuity Product or Single Premium Pension Plan from HDFC Life. Even if other Insurance Co.’s are offering better Products, the Customer would be restricted to buying them from HDFC Life and they have No Other Choice. This could be a big drawback for a customer because, HDFC Life at its discretion could choose to reduce the yield of its Annuity or Pension Products and the customers whose policies are maturing that year would have to live it with…

So, this too is a Big Minus Point on this product.

My Review Score

If I were to Review this Product on various aspects, the scores would be as follows

6.75 out of 10 isn’t a bad score considering the fact that most ULIP Products available on the market may not even cross the 5 out of 10 if we evaluate them on these aspects. So, all in all, I would say this is good product…

Who is this Product For?

This product would be a Good Choice for you if you feel more than two of the points below are true:

1. If You Do Not have a formal Pension System that will fund your Retirement Years

2. If You Do Not wish to withdraw the Entire Corpus @ Maturity
3. If You Intend to stay Invested in the Long Run and will continue to make Premium Payments as agreed in the policy document
4. If You Intend to Sign-Up for a Term Insurance Product that will provide the Requisite Insurance Coverage for your Family
5. If You are OK to purchase the Annuity product from HDFC Life at Maturity

Who is this Product Not For?

This product would not be a Good Choice for you if you feel one or more of the points below are true:

1. If You have a Formal Pension System that will fund your Retirement Years (Ex: Company Covered Pension System)

2. If You feel Withdrawal of Maturity Proceeds is your preferred Choice
3. If You feel you Need more Investment Choices and the Ability to choose how much % of your investment each year will get invested in the Equity Markets
4. If You Feel you can invest your Maturity Proceeds into different products and can Generate a higher income than Annuity Products

Some Last Words:

A huge chunk of the working class population of our country still Do Not have access to formal Pension options for their golden years plus, most of us may not have the time or the know-how to manage our investments by ourselves. This product would be a good low-cost option for anyone who wants to generate regular income during retirement.

Happy Retirement!!!

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Disclaimer: The purpose of this article is not an offer to sell this product. All Stock Market Related Investment Products come with Risks and so does this product. If you purchase this product, you are hereby agreeing to bear this investment risk. Also, please read the product offer document carefully before investing. The Author or the Blog will not be Liable for any losses that may arise due to your investment decision.

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