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LIC Jeevan Shanti vs NPS; A Comparison Between The Pension Schemes

Olga Robert

LIC's new single premium pension plan launched on 12 September 2018-Jeevan Shanti, is now another investment instrument that you can use to increase your pension for the retirement years. Here we shall compare it with the popular National Pension Scheme (NPS) and help you decide what would suit your requirements. Whatever you choose, both of these options can be purchased online.

Returns

NPS: A portion of the NPS investment goes to equity, which is beneficial for those who start investing at an earlier age. The returns are not guaranteed and depends on market performance.

Currently, NPS has 50 percent equity exposure, which is proposed by the PFRDA to be increased to 75 percent, making the change of returns higher.

Jeevan Shanti: It comes with 'immediate' and 'deferred' annuity (meaning pension) plans. With the immediate plan, you can invest a lump sum and your pension will start immediately. For example, if you can invest Rs 10 lakhs, you will get an annuity of Rs 74,300 per year for life.

Deferred annuity scheme allows you to invest a lump sum for your future retirement years. The maximum deferred period allowed is 20 years and a minimum is 1 year, which means you can choose to receive a pension from the lump sum invested after 1 to 20 years. The returns in this system are higher compared to the immediate annuity plan.

The returns from both the schemes are guaranteed, which means the amount of annuity and for the period mentioned in the scheme are certain.

Since the scheme also provides a life (insurance) cover, the returns are lower than that of NPS.

Contribution

NPS: There is no upper limit. The minimum amount to be deposited to keep your NPS account active is Rs 500 monthly (Tier I type of account) and Rs 250 per month (Tier II type of account) or Rs 1,000 (Tier I account). The minimum age to join the scheme is 18 years and the maximum is 65 years.

Jeevan Shanti: There is no maximum limit but the minimum contribution has to be at least Rs 1.5 lakh. A lower purchase price may be allowed in specific cases such as NPS or if this plan is purchased for the benefit of Divyangjan.

The minimum age at entry has to be 30 years and the maximum 85 years for immediate annuity scheme. For the deferred annuity scheme, the minimum age is 31 years and the maximum is 79 years (at entry) and 80 years (to stay vested).

Tax benefits

NPS: You are allowed a total of Rs 2 lakh in a tax deduction for NPS. While the Rs 1.5 lakh on your contributions towards the scheme (up to 10% of salary or 20% of self-employed's gross income) is allowed for tax deduction under section 80CCD(1) (within section 80C), an additional self-contribution of Rs 50,000 under section 80CCD(1B) towards NPS can also be utilised.

Jeevan Shanti: Deductions can be claimed for contributions made within the limit of Rs 1.5 lakh under section 80C.

Annuity Rate Selection

NPS: You have the option to change your scheme fund manager at any time if you are not happy with their performance. There are plenty of private NPS fund managers to choose from.

Jeevan Shanti: You can only pick from the choice of annuity options provided by LIC.

Withdrawal

NPS: You cannot withdraw from NPS entirely on retirement. You will have to keep at least 40 percent of the corpus to get a regular pension. When you withdraw the remaining 60 percent, it is now completely tax-free.

You can withdraw up to 25 percent for certain requirements if you stay invested for at least 3 years.

Jeevan Shanti: The scheme can be surrendered after 3 months of the issuance of policy or expiry of 'free-look' period but, under certain annuity options only.

Loan

NPS: You cannot take a loan against NPS deposits.
Jeevan Shanti: After completing one year, a loan can be availed but only when opted for specific options under the scheme.

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