Everything about Unit Linked Pension Plans: Meaning, Features & Working Explained

What are Unit Linked Pension Plans?

How Unit Linked Pension Plans Work?

Features and Benefits of Unit Linked Pension Plans

The key features of Unit Linked Pension Plans are: 

1. Eligibility

The investors must be between the age of 35 to 70 to be eligible to invest in this plan.

2. Premium

As with other insurance plans, the premium allocation is low in the initial years of investment, however, it grows gradually over the years. 

3. Returns

As per the market trends, ULPPs usually provide lucrative returns which makes them a good option for wealth accumulation.

4. Market-Linked Investments

ULPPs offer investment options in various funds, including equities and debt, allowing policyholders to potentially benefit from market returns.

5. Retirement Corpus

These plans are designed to accumulate a retirement corpus over the policy term, providing financial security during retirement. Apart from the fund value, some ULPPs also provide guaranteed loyalty additions to the plan. 

6. Flexibility

ULPPs offer flexibility in premium payment frequency, allocating choice of funds and in switching funds. They also provide the option of top-up premium, wherein you can enhance your retirement corpus by investing more in the later years.

These features of flexibility make it convenient for policyholders to maintain and optimise their investment as per their choice.

7. Partial Withdrawals

ULPPs, as with other ULIPs, allow partial withdrawals after a lock-in period of 5 years, thus enabling policyholders to access funds in emergencies.

8. Vesting Age

Vesting age is the period when you start receiving your pension. Policyholders can select a vesting age typically between 50 to 75 years as per your requirements.

9. Death Benefit

ULPPs offer a death benefit to the nominee in case of the demise of the policyholder. This death benefit, in most cases, is the higher of fund value or 105% of the cumulative premiums paid.

10. Annuity

On retirement, the investors can withdraw 60% of the corpus, while the remaining is invested in an annuity scheme that becomes a regular source of taxable income.

11. Tax Benefits

Contributions made towards ULPPs are eligible for tax deductions under Section 80C, and pension received is tax free under Section 10(10D). However, the tax benefits are as per the prevailing tax laws.

12. Surrender Options

Policyholders have the option to surrender the policy and receive the fund value after a lock-in period of 5 years.

13. Riders

As with other insurance products, ULPPs also provide the option of adding riders to the plan. Apart from the regular riders like critical illness, accidental death benefit, these pension plans also offer riders like Partner care rider, wherein you can guarantee a retirement benefit for your spouse in the event of your unfortunate death.

What are the Charges Applicable in a Unit Linked Pension Plan?

What is the Difference Between Unit Linked Pension Plans and Traditional Pension Plans?

Points of Differentiation Unit Linked Pension Plan Traditional Pension Plans
Investment Strategy ULIPs invest in market linked funds like equity, debt, money market etc., as per the investor's choice. Traditional pension plans primarily invest in more secure fixed income options like g-secs bonds, etc.
Returns and Risks Returns depend on market performance, thus offering the potential for higher returns but with the associated risk. Since they invest in more stable instruments, the risk is much lower as compared to ULIPs, at the same time, the potential for returns is also lower.
Flexibility ULPPs offer more flexibility as the policyholders can choose and switch their investment funds as per their risk appetite. Since the investment strategy in traditional pension plans is predetermined by the insurance company, these offer no flexibility in terms of investment.
Transparency More transparency as the policyholders can track the performance of their funds. No transparency in terms of investment strategy.
Withdrawal Options Offer partial withdrawal or systematic withdrawal plans (SWP) after the lock in period. Has restrictions on withdrawals, and premature withdrawals might have penalties.
Lock In Period They have a lock in period of 5 years. Generally, the concept of lock in period does not apply since you can never freely access the funds. The only option is surrender/partial surrender that comes with its own penalties.

FAQs About Unit Linked Pension Plans

Can I Make Partial Withdrawals from my ULPP Before the Maturity Date?

Some ULPPs allow partial withdrawals after the lock-in period, subject to policy terms and conditions.

What Happens if I Don't Pay my ULPP Premiums on Time?

A grace period is provided for premium payments. If you still don't pay, your policy may lapse, or you may be able to revive it by reinstatement.

What is the Vesting Age in a ULPP?

The vesting age is the age at which you start receiving the pension income, typically between 55 and 70 years.