ITDC INDIA EPRESS/ ITDC NEWS Never be in a hurry when investing in a financial product, more so if it is an annuity scheme, say chartered accountants and income tax advisors. Annuity schemes, particularly those intended to give senior citizens lifelong pension have always been somewhat controversial and largely doubted investment options in the Indian personal finance space. Increasingly, vulnerabilities of senior citizens are being exploited to sell them.
For people who have built up a decent lump sum of savings to live off their sunset years, the annuity schemes in the market promise a regular monthly income, for as long as they live. But, there is a rider. The lump sum, mostly, cannot be dipped into, in case of need. In the best of plans, they go to the nominee. Simply put, the person who has saved all this life, has no control over the lump sum.
These financial products, under different names and targeting different age groups, are marketed by many companies.
Chartered Accountant Sanjay Gupta says that it is good only for a small group of people who cannot manage their finances and who would want their lump sum to go to their nominee. Such people, he said , would have other sources to fall back upon for emergency and other needs, and so do not need to dip into this sum. They also have everything else people may want: healthcare facility, roof over their heads, enough funds to travel as long as they can. “ What they either don't know or dont care about is the high cost of annuity schemes,” explains Sanjay. Almost all the figures that various companies selling such products give out, in terms of monthly pensions, is approximate. “There is no transparency in terms of costs,” he says, adding that the regulator does not bother about it being made public, because “there is a complicated process of calculating life span, tracking returns that will be interest rates and their own costs in administering the schemes”. All this resulted in making the interest rates, unstated on paper, very low and the costs relatively high, compared to debt funds which can serve the same purpose.
Though Finance Minister Arun Jaitley gave these schemes a big push in two of the budgets he presented—where the government guaranteed higher interest rates in the form of Varishta Pension Bima Yojana—it has not kicked off the way the National Pension Scheme giving investors a choice of investing in equity.
So, what do the companies selling such schemes do to give them a push?
They bamboozle unsuspecting visitors to banks. A senior citizen narrated how when he had gone to a public sector bank to settle a previous Tax Saving Fixed Deposit and open a fresh one for the current financial year, was directed to a senior officer, who offered what he said was a much better scheme. The 70 year old was told to invest lumpsum—Rs 6 lakhs a year—over the next year five years, at the end of which he would get a monthly pension of about Rs 24,000. The figures would not be part of the policy, but given the history of the scheme, that was likely, he said. He brushed aside the bank client's contention that all these schemes come with the clear line that past performance is not a guarantee of future performance! He insisted it was not annuity, but government bonds in which they were investing, and these came with all the benefits of the Public Provident Fund accruals, but the added advantage of pension for ever ! It goes without saying that the customer preferred his FD which gave him control over his money, and came with clarity of how much interest he would get.
Many bank officers—of public sector as well as private sector—attempt to pedal such and other schemes from banks, deviating from the regular transactions people would want to do in banks .
“This is wrong,” says Gupta, adding that in the short time in a busy branch, people are not always prepared to take decisions on schemes. On the other hand, when the sale of such products are done by the bank's arm that sells insurance and pension products, it is with appointments, at leisure, and giving people time to think. “Most importantly, people are not ready with a cheque book to rush into such deals,” remarked Sanjay, saying that Indians are still not “hardened enough” to take such decisions quickly. However, as of now, there are no bank rules that prevent their officers from promoting and attempting to sell such financial products. Most of them do this to push an agency being run by a family member,” the chartered accountant said.