LIC New Pension Plus Review: Retirement Fit

Planning for retirement means choosing a pension product that suits your goals, risk appetite, and expected income needs. The LIC New Pension Plus scheme is a market-linked pension Unit-Linked Insurance Plan (ULIP) that combines investment flexibility with guaranteed additions to help build a retirement corpus over the long term.

But is it a better choice than alternatives such as the National Pension System (NPS) or other retirement investment products? Let’s find out.

This review covers the LIC New Pension Plus Plan No. 867 details, including its investment options, guaranteed additions, eligibility, charges, and retirement benefits.

What Is the LIC New Pension Plus Plan?

LIC New Pension Plus (UIN: 512L347V01) is a non-participating, unit-linked, individual pension savings plan, or simply put, a pension ULIP. It helps you build a retirement corpus by investing your premiums in market-linked funds. After deducting the applicable premium allocation charge, LIC uses your premium to purchase units in the fund you choose. As a result, your corpus grows or falls depending on the fund's Net Asset Value (NAV).

Unlike traditional pension plans, LIC New Pension Plus doesn't guarantee your maturity corpus. The investment risk is entirely borne by the policyholder.

LIC New Pension Plus: Fund Options and Vesting Age Rules

You can choose only one of four funds at inception and switch between them (4 free switches a year, ₹100 per switch after that).

Here's a quick snapshot of the vesting, commutation, and annuity rules under LIC New Pension Plus:

Note: Commutation means withdrawing a part of your retirement corpus as a tax-free lump sum at vesting instead of using the entire amount to buy an annuity. Under LIC New Pension Plus, you can commute up to 60% of the corpus, while the remaining at least 40% must be used to purchase an annuity.

Key Features of the LIC New Pension Plus Plan

• Flexible Premium Options: You can pay a single premium of at least ₹1,00,000 or choose a regular premium starting from ₹30,000 (yearly), ₹16,000 (half-yearly), ₹9,000 (quarterly), or ₹3,000 (monthly). There's no maximum premium limit, subject to LIC's underwriting guidelines.
• 5-Year Lock-in and Limited Liquidity: During the first five years, you cannot access the policy proceeds through surrender or partial withdrawals. If you surrender or stop paying premiums during this period, your fund value, after applicable discontinuance charges, is transferred to the discontinued policy fund, and the proceeds are available only after the applicable lock-in and revival conditions are met.
• No Mortality Charge: Since LIC New Pension Plus is a retirement savings plan, it does not levy a mortality charge. On death before vesting, the nominee receives the higher of the fund value or 105% of the total premiums paid, reduced by any partial withdrawals made during the two years immediately preceding death, subject to the policy terms.
• Option to Extend Vesting: If you're below 60 years of age when you request it, you can extend the vesting date within the same policy, provided the total policy term doesn't exceed 42 years.
• Partial Withdrawal Facility: After the 5-year lock-in, you can make up to 3 partial withdrawals for specified reasons. Each withdrawal is capped at 10%, 15%, or 25% of the fund value, depending on your premium amount, and reduces future Guaranteed Additions on a pro-rata basis.
• No Loan Facility: Loans aren't available under LIC New Pension Plus.

Guaranteed Additions and Annuity Options in LIC New Pension Plus

Note: Guaranteed additions increase your investment amount, not your returns. They are invested at the prevailing NAV and remain subject to market risk. They apply only while the policy is in force with all premiums paid and may reduce after partial withdrawals or vesting extension without premium payments.

At vesting, you can withdraw up to 60% of the corpus as a lump sum, while at least 40% must be used to purchase an annuity. Of the policy proceeds remaining after commutation, up to 50% can be used to buy an annuity from another life insurer, while the balance must be used to purchase an LIC annuity.

LIC New Pension Plus vs. National Pension System (NPS)

Key Takeaway: NPS has lower charges, greater investment flexibility, and higher lump-sum withdrawal flexibility. At normal exit, you can withdraw up to 80% of the corpus as a lump sum under NPS, compared with up to 60% under LIC New Pension Plus.

LIC New Pension Plus Premium Illustration and Charges

According to LIC's benefit illustration, a 30-year-old paying ₹30,000 annually for a 42-year policy term could accumulate a fund value of approximately ₹23.3 lakh at an assumed annual return of 4%, or ₹64.9 lakh at an assumed return of 8%. These figures are illustrative and not guaranteed, as your actual corpus depends on the performance of the chosen fund.

It's also worth noting that the brochure shows a net yield of 6.53% against an assumed gross return of 8%, indicating that policy charges, including the premium allocation charge, policy administration charge, and fund management charge, reduce your effective returns over time.

The plan also includes several charges that affect your overall returns, including:

• Premium Allocation Charge: Deducted before your premium is invested. It is up to 7% in the first year for offline purchases and 2.5% online, reducing in later years.
• Policy Administration Charge: A monthly fee for managing your policy, deducted only during the first five policy years. It varies by premium amount and policy type.
• Fund Management Charge (FMC): An annual fee for managing your investments. LIC charges 1.35% per year for active funds and 0.50% for the Discontinued Policy Fund.
• Discontinuance Charge: Applies if you stop the policy during the 5-year lock-in period. The charge depends on the policy year and premium amount and reduces over time.
• Switching and Partial Withdrawal Charges: The first four fund switches each year are free. Every additional switch and each partial withdrawal costs ₹100.

Note: You can find the detailed charge structure in the LIC New Pension Plus 867 PDF download (sales brochure), pages 20-26.

If you're estimating your retirement corpus, you can also use the LIC New Pension Plus calculator available on LIC's website to generate a personalized benefit illustration based on your age, premium, and policy term.

Note: The figures above are based on LIC's public disclosures and IRDAI annual reports. For detailed comparison with other insurers, explore Ditto Data Lab. The metrics above reflect LIC's overall performance, not the LIC Pension Plus Plan specifically.

Pros of the LIC New Pension Plus Plan

• Four investment fund options cater to different risk appetites, from conservative debt-oriented investing to high-equity exposure.
• Guaranteed additions help boost your retirement corpus, provided the policy remains in force and all due premiums are paid.
• Flexible vesting options let you extend the vesting date if your retirement plans change, subject to the plan's conditions.
• Partial withdrawals are available after the 5-year lock-in for specified financial needs, such as children's education, marriage, home purchase, or critical illness.
• Annuity flexibility allows you to use up to 50% of the policy proceeds remaining after commutation to purchase an annuity from another life insurer.

Limitations of the LIC New Pension Plus Plan

• Market-Linked Returns: Your retirement corpus depends on market performance, so returns are not guaranteed.
• Pension Isn't Guaranteed: While your corpus grows based on fund performance, the pension you receive depends on the annuity rates prevailing at vesting, which are not locked in.
• Limited Liquidity: If you survive until vesting, you can withdraw up to 60% of your corpus as a lump sum, while at least 40% must be used to buy an annuity. In contrast, if you die before vesting, your nominee can receive the entire death benefit as a lump sum, subject to policy terms.
• Higher Charges: Compared with retirement options like NPS, LIC New Pension Plus has higher charges, which can reduce your long-term returns.

Who Should Buy the LIC New Pension Plus Plan?

• Already have adequate term life insurance and are looking for a separate retirement savings plan.
• Are comfortable with market-linked returns and understand that your corpus will depend on fund performance.
• Want the flexibility to choose between equity- and debt-oriented funds based on your risk appetite.
• Value features such as guaranteed additions, the option to extend the vesting date, and the flexibility to use up to 50% of the policy proceeds remaining after commutation to purchase an annuity from another insurer.

If you're still comparing LIC investment plans for this purpose, it's worth comparing this against a few alternatives first.

Who Should Avoid the LIC New Pension Plus Plan?

• Prefer a guaranteed retirement corpus or pension instead of market-linked returns.
• If you want your entire retirement corpus as cash, this plan may not be suitable, as even after the 5-year lock-in, you can withdraw only up to 60% as a lump sum, while at least 40% must be used to purchase an annuity.
• Are looking for a low-cost retirement investment, since ULIPs have higher charges than options like the National Pension System (NPS).
• Don't want to actively monitor or manage your investment funds over the long term.

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Conclusion

The LIC New Pension Plus plan can be a suitable addition to your retirement portfolio if you're comfortable with market-linked returns, a mandatory 5-year lock-in, and the requirement to use at least 40% of your retirement corpus to purchase an annuity at vesting. It offers investment flexibility through multiple fund options and enhances the corpus with guaranteed additions, but like any ULIP, your returns depend on market performance.

Before investing, compare its charges, fund options, and overall value with alternatives such as the National Pension System (NPS) and other pension plans. It's also a good idea to review LIC's benefit illustration based on your age, premium, and retirement goals to determine whether the plan aligns with your long-term financial needs.