Till the New Pension Scheme (NPS) becomes available to private citizens , the do-it-youself option is likely to serve you best in saving for retirement
Suanshu Khurana, a young journalist, dreams of building a home by the beachside and spending her sunset years writing a book. Sounds good, but only till here. Ask her if she has started investing for retirement and the 22-year old glares at you. ?I?m just 22. What makes you think I would start saving for retirement so early?? she says. Suanshu is not the only person who thinks it is too early for her to think of retirement. All of us have fancy dreams for our days of retirement, but few of us really have a financial plan in place for realising those dreams. Though it may seem far, retirement is inevitable. The earlier one begins, the lesser one needs to save each month to accumulate an adequate retirement corpus.

?It is very important to start retirement planning at an early age. The risk of outliving the savings accumulated for retirement can be quite a nightmare,? says Dhirendra Kumar, chief executive officer at mutual fund research firm valueresearchonline.
The life insurance and mutual fund industry offer a plethora of pension plans that promise to make your task of saving for retirement a cakewalk.

Life insurers? offerings
The life insurance industry offers two types of pension products. Deferred annuity plans help you accumulate a corpus for retirement. When you reach retirement, they allow you to receive one-third of the corpus as a lump sum, while the rest is annuitised (an arrangement that gives you a monthly income).
An immediate annuity pays you a regular income after retirement from the corpus you have accumulated. Immediate annuities come in several variants:
Life annuity: This option allows you a fixed amount for your life.
Annuity certain for life. This form gives you a guaranteed payout for a certain period of time, say, five, 10, or 15 years and then for life if you survive the term chosen. However, if you die within the term chosen, your nominee receives a payout for the remaining term.
Life annuity with return of premium. This option is similar to the above plan except that it allows the return of purchase price to your beneficiary. Here, you get a lower monthly pension than in the case of annuity for life option.
Life annuity with period certain. This option allows payment as long as you live (as does the annuity for life) but with a minimum period during which your nominee receives payments even if you die earlier than expected. The longer the guarantee period, the lower the monthly benefit.
Joint and survivor. In the joint and survivor option, monthly payment is made during the annuitants? lives, with same or lesser amount paid to the survivor. The monthly payment depends on the annuitants? ages, and whether the survivor?s payment will be 100 or 50 per cent of the joint amount. Return of purchase price is also offered.

But are these products worthwhile? ?They are not very efficient vehicles. They are pitched as tax-saving vehicles. Do not do retirement planning through these products as they lack flexibility,? says Kumar.

Mutual funds? pension offerings
Two mutual funds, UTI and Templeton, offer pension plans. These are essentially monthly investment plans that offer lump sum and systematic withdrawal plan annuity on vesting. Your savings are invested in debt and equity in the ratio of 60:40. An entry and an exit load, in the range of 1-3 per cent, apply to both the schemes.

Do-it-yourself option
Till the time the New Pension System (NPS) becomes operational for private citizens, the do-it-yourself option would meet your needs best.
?Pension plans from insurers have a high cost structure. They are tax inefficient and lack flexibility. We advise our clients to stay away from annuities. Once you enter such a policy, you will have to buy an annuity. What if the rates prevailing at that time are not great, or what if you do not want an annuity at all? If you create your own corpus, you have the flexibility to decide if you want an annuity or not,? says Amar Pandit, a Mumbai-based financial planner.
While you are in the accumulation phase, use a mix of debt and equity instruments to gather a sizeable corpus. ?Invest in index funds and public provident fund (PPF). While equities give you better returns over the long term, PPF will lend stability and assure you a fixed rate of return,? says Surya Bhatia, a Delhi-based financial planner.

Once you have retired, reinvest the corpus in low-risk schemes and also assure yourself of a regular fixed income. ?In today?s scenario, if you are not in the highest tax bracket, you are better off putting a part of your corpus in a fixed deposit. The next tranche could be invested in a Senior Citizens Saving Scheme. This will ensure that you earn at least a 9-10 per cent return. Finally, opt for Post Office Monthly Income Scheme (POMIS) that will fetch you an 8 per cent return and a bonus of 5 per cent at the end of the tenure, and ensure you a regular income. If there is some money left, then look for good fixed maturity plans (FMPs), where the portfolio is safe, and at cash management funds,? says Pandit.

A part of your corpus should be invested in equities, its proportion depending on your risk profile. ?Even in retirement, when you have another 20 or maybe 30 years to live, a small part of your corpus should be invested for the long term in equities to combat inflation,? says Kumar.
However, if you are not a disciplined investor, then a pension policy from a life insurer may suit you. Look for one with low costs and a good choice of funds. ?Life insurance companies inculcate financial discipline both in the accumulation and consumption phase. In the consumption phase, annuities inject some stability and discipline in expenditure demand,? says Rahul Aggarwal, chief executive officer, Optima Insurance Brokers.

Some pension plans from insurers automatically switch your investments from equity to debt as you advance in your life cycle. ?Besides dynamic life stage based asset allocation plan, we also offer 5 per cent indexation benefit. As your income rises, your allocation to long-term goals also rises by the same percentage. At the prime age of your career, say, at 45, you can freeze the premium at that level,? says Manik Nangia, vice president, product management group, Max New York Life Insurance.

In today?s circumstances, the do-it-yourself option is the best way to save for retirement as it is low cost and offers you maximum flexibility. However, by the first quarter of next year, the New Pension Scheme (NPS) will become available to all. The NPS will offer similar benefits such as low charges, flexibility, and wide range of investment options. Once the NPS becomes operational, study it closely and if you find it suitable, use it as the preferred vehicle for retirement saving.