Current high interest rates make this the right time to invest in a pension product

Retirees prefer a steady income not affected by interest rate movements and annuity or pension products are the best option, as they enable them to be financially independent

Several market experts are of the view that interest rates in India will decline over the next few months from the current levels of approximately seven per cent giving customers the opportunity to lock-in their investment in an annuity product at the current interest rate.

So how will investing in an annuity product now benefit customers?

Pension or annuity products which are only offered by life insurance companies provide a guaranteed regular lifelong income. The rate of interest is locked-in at the time of purchase. Retirees prefer a steady income not affected by interest rate movements and annuity or pension products are the best option, as they enable them to be financially independent. Since the interest rate is expected to fall going forward, customers buying an annuity product will be able to lock-in their investment at the current interest rate.

Let’s take the example of Prajapati, who initially invested his savings of Rs. one crore in deposits at eight per cent interest, earning him Rs. 67,000 monthly, which supported a comfortable lifestyle. However, when he tried to renew his deposits after a few years the interest rate dropped to six per cent, his monthly income reduced to Rs. 50,000, thereby affecting his standard of living.

Let’s see what would have happened if Mr. Prajapati had invested his money in an annuity product. Assuming the interest rate of seven per cent, he will receive approximately Rs. 58,000 per month for the rest of his life. This will remain constant irrespective of any movement in interest rates.

The ICICI Pru Guaranteed Pension Plan Flexi stands out among annuity products as it helps customers build a retirement fund by making systematic investments. This ensures a sure and stable income after retirement, which is particularly beneficial in a market like India where interest rates are predicted to decline. Additionally, a variant of this plan offers a unique feature which provides a 100% refund of all premiums paid, making it the life insurance industry’s first such product.