by Moiz Mannan
The rolling out of a social security plan for Indian expats in the Gulf, starting with the UAE and now Saudi Arabia, has once again brought into focus the issue of a financial cushion for those retiring or returning to India from jobs abroad.
The matter is more serious for middle and low income non-resident Indian (NRI) workers in the Gulf as they have limited investment options in their host country and are generally unaware of the avenues back home. Of late, we have seen an increase in the number of returnees as Gulf states implement measures and regulations to nationalise their workforces.
After an announcement to that effect at the Pravasi Bharatiya Divas in 2009, the scheme piloted by the Ministry of Overseas Indians Affairs (MOIA) remained largely on paper. Formerly known as the Pension and Life Insurance Fund, the Ministry rebranded and launched the scheme as ‘Mahatma Gandhi Pravasi Suraksha Yojna (MGPSY) in 2012 in a bid to provide blue-collar workers with pension, Insurance and resettlement amount upon their return to India. The MOIA nominated Bank of Baroda and the State Bank of Travancore (SBT) as its banking partner for the MGPSY scheme.
The scheme does not cover low income expatriates who do not belong to the ECR category. The biggest drawback, apart from a lack of awareness, was the limited number of banks and branches where the scheme was available. Now the Ministry is reportedly considering all banks and a few non-banking institutions to participate in the scheme.
Having said that, the middle and low income expatriates should also be looking at some other such pension and retirement schemes being offered by banks and insurance companies in India. NRIs of modest means and unsure jobs need not fully rely on the government scheme but try to build a corpus with a scheme or plan that would give them monthly returns to at least sustain themselves and their families in case of a sudden or unplanned return.
The corpus to target is not easy to arrive at because one needs to fully understand the costs in India. Also how much one needs to save will depend upon the purchasing power of the currency he or she saves in. It is advisable to take the help of a financial planner to arrive at the living expenses you will need post retirement and the corpus required towards that end.
A pension plan ensures regular income after retirement. There are two phases in any pension planning- accumulation and disbursement. The first phase involves investing in different financial instruments. To build a huge corpus amount, one should start as early as possible. A person can start investing just a small amount and then increase the amount as per his financial ability. By starting with low amount for more number of years, a person can accumulate quite a big lump sum amount. If a person invests in pension plan, then at the end of policy term, one-third of the amount can be withdrawn as lump sum while the rest of amount is used to purchase annuity.
When lump sum amount is available, one can use it to purchase annuity. Annuity is available in different options- like annuity for limited term, annuity for entire life etc. One can opt for monthly, quarterly or any similar periodic payouts.
A life annuity is basically something which will guarantee you a specified amount of money as long as you life. After that, this money which you have invested will go to your nominee. For a specified period, your nominee will get the fixed amount of money regularly, as had previously been decided.
There is also something known as the annuity certain plan, wherein the annuity amount is paid for a certain number of years and then stopped. This period could precede your lifetime. Sometimes, you can choose to go in for deferred annuities and have the annuity amount deducted from your taxable income and the best part is interest won’t be charged right away. However, the proceeds will be taxable.
Many people confuse annuities with life insurance cover, when in reality they couldn’t be more different. These, unlike life insurance cover do not offer the guarantee of payment or income throughout your life. These are basically bought so that you can generate income after you retire or take voluntary retirement or lose your job. They promise a good, comfortable life.
Insurance companies, both in the public and private sector in India, have a variety of retirement options. SBI Life’s Lifelong pension plus, for example is aimed at NRIs who are looking for a non - participating plan and security of their investments. SBI life smart pension is for NRIs who are looking for their investment to be divided into parts that assure them guaranteed returns and a part that is invested in units can go for this plan.
The annuity option is almost the same in both. The NRI can choose to withdraw one third of the accumulated sum on maturity of the plan. If he does withdraw this sum then the rest of the sum is paid off as annuities. If not then the entire accrued sum along with benefits is paid off as annuities to NRI.
The public sector insurance giant, Life Insurance Corporation of India (LIC) offers a pension plans called New Jeevan Suraksha 1 and Jeevan Akshay VI. New Jeevan Suraksha 1 is a plan with unique options such as joint life, a percent rise of 3 per cent on the annuity, grace period such other facilities to attract NRIs. There are other insurance coverage offered together with this plan but it is optionally available.
Jeevan Akshay VI is a one-time premium payment, annuity buy scheme. An NRI will pay a single payment amount right away and he or she can select to get annuities for the rest of life at any time. The annuities are payable on per month, every quarter, half yearly or even on yearly basis.
Retirement plans offered by various providers in India are becoming investment alternatives for NRIs, but one must take a call after proper evaluation of one’s situation and specific requirements.
The Peninsula
