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Pension Plans and the Better Alternative

by | Jul 25, 2020 | Banking, Finance, Retirement

I do not like pension plans. Simply because of the fact that the returns are low and they are taxed as per your normal income. In your retirement, most of your income should be from capital gains. They are tax efficient.

But Pension plans are sold very aggressively by the banks. They are a good source of revenue for them.


Example of  Pension Plan selling

My friends came down from abroad to spend their retirement in Mumbai.

We calculated and figured out that they would require around 6 – 6.5% returns on their money for their routine expenses.

So, they were very excited when their bank, ICICI, introduced them to this wonderful ‘Pension Plan’. They would get just above 6% for life and in addition, the money they invest would be handed over to the heir on their death! Exactly what was required for their retirement.

The ‘Relationship Manager’ was pushing hard and these people called me. I told them that the 6% return was before taxes and then I asked them to ask the RM one question – what happens if you get seriously sick after a year and decide ‘forget the pension for life, I need the money now for my treatment’. Will you get the money? The answer was ‘No – you cannot get the money back.

This is why I am against Pension funds. In our old age, there should be no money that is locked in and cannot be reached in an emergency.

 What did the ICICI RM do? Laughed and in a jiffy, turned around and offered them a great ULIP!!


An Alternate Pension Plan 

So, what is the alternative?

A pension is basically a way of converting a lump sum amount of money to a stream of money coming to you till death.

Please go over the above statement again and really understand it. It is important to do so.

The Pension Plans that are available, take away your control over the principal amount. If, say, you change your mind or the circumstances change, can you get your money back? No.

Then think – is there any other way to convert your money to a lifetime stream AND retain control over the invested amount?

In my opinion, a Mutual Fund with an arrangement to automatically withdraw a certain amount of money is the smarter way.

Be educated and don’t get taken for a ride.


Take care and be safe.


Niranjan Bangera




  • If you want more details about setting up a Pension via Mutual Funds with monthly withdrawals, do contact me.
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  1. Sunil Kelkar

    You should talk about the 4 percent rule for withdrawal (adjusted for inflation annually)during retirement. The 6 percent drawdown you have talked about is a little aggressive.

    • niranjan

      Where in the article have I mentioned drawdown of 6%?


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Written By: niranjan

Financially Stupid Niranjan


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