ING Life retirement planning advertisement in ET Wealth makes misleading assumptions. It wants you to retire on your terms, but with ING’s assumptions. What can be expected from agents selling the plan? May be even more mis-selling?

ING Life has issued a full-page advertisement in ET Wealth giving details of retirement planning, their traditional product-New Best Years-and throwing at you some numbers to help you retire on your terms. While everyone wants to plan for retirement and ensure there are periodic funds available to meet retirement expenses, making realistic assumptions is the key to ensure a smooth retirement ride rather than ending up with disaster of outliving your assets.

The flawed plan tries to match what returns the company can possibly offer to what you may need post-retirement. What you may actually need can never by attained by the corpus they can build due to inherent assumptions! Instead of matching best possible returns to your least possible needs, it needs to match worst possible returns to your highest possible needs.

If the company can advertise such planning assumptions, what can be expected from agents selling the plan? May be even more mis-selling?

•  Inflation is assumed to be 5% every year till retirement. Is this realistic in current scenario? This is used to arrive at estimated annual expenses (calculation1) at the time of retirement. Moreover, with longevity today, people can easily live more than 20 years after retirement. The increase in the estimated annual expenses over those years is not mentioned in the calculation. It means that the plan assumes your expenses at retirement to continue unchanged till you die possibly after 20 years.
•  It comes up with estimated value of your retirement fund (calculation2) required to meet the estimated annual expenses (calculation1). The issue here is it never mentions that annuity is taxable. With the possible annuity interest rate they give, when we consider the annuity being taxable, you will not be able to meet your estimated annual expenses.
•  The rate of return during the accumulation phase is assumed to be 10%. This number is used for estimating investments you need to make into your policy until retirement (calculation3), to meet the estimated fund value (calculation2), if you start savings today. Considering the guarantee of capital specified in the new pension guidelines from Insurance Regulatory and Development Authority (IRDA), it is highly unlikely that 10% rate of return can be achieved. Most of the investments will have to be in the debt market irrespective of it being pension ULIP or pension traditional.
•  The average bonus rate from ING Life in the last five years has been 8.33% on the accumulated funds (premium minus charges), not on the premium paid. The actual returns will be lower and hence achieving 10% return with capital guarantee product is close to impossible in pension products. Moreover, 8.33% is the average of last five years; the bonus rate in the next 20-30 years can be vastly different.
•  The advertisement specifies that customer has the option to choose an annuity plan from ING Life or from the open market at the time of vesting. This is not true after the new pension guidelines from IRDA last month. The customer has to continue with same insurance company for the annuity phase of the product. There is no flexibility.