How Is The Annuity Calculated?
The annuity, i.e., the income you receive is calculated on the basis of the annuity rate determined by the insurance company. It is determined at the time of buying the pension plan and remains fixed throughout the plan duration.
The annuity rate is dependent on a number of factors, like the payout period, plan type, your age, etc. The annuity payouts will be calculated on the total premiums paid minus taxes.
Important: As per IRDAI regulations, the annuity amount you receive annually cannot be less than Rs. 12,000.
Jake, a 45-year-old marketing professional, plans to retire at 60. He wants a secondary income source during his retirement years and decides to invest in a Pension Plan in July 2022.
Let’s assume -
He invests a premium of Rs 1 Lakh (excluding taxes) annually for a 15 years. So, he will have to pay the premiums till he reaches the age of 59 years - till July 2036.
He chooses to receive the annuity payout immediately for a period of 25 years. Thus, he will start getting the annuity payouts from July 2037 - a year after his premium payment term is over.
The annuity rate under the plan is 6%. So,
Annuity Payable To Jake = Total Premiums Paid (excluding taxes) X Annuity Rate
= (1,00,000 X 15 years) X 6%
= 15,00,000 X 6%
= Rs. 90,000
From July 2037 onwards, Jake will receive an annuity of Rs. 90,000 every year for 25 years.