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Throughout our lives, we strive to achieve our goals and ensure a financially secure future. Whether planning for a comfortable retirement life or simply income after a certain time, financial planning would be key for both situations.
One of the best ways to easily achieve this goal for the future without straining your finances is to get an annuity plan in UAE. With such a plan in your portfolio, you can pursue all your goals with guaranteed income for the period specified by you, which could also be the whole of your lifetime.
In this article, we will have a close look at the top features of such plans, the top annuity plan benefits, and more.
An annuity plan is a financial instrument that offers guaranteed recurring income for the rest of your life after you make a lump-sum investment. Here, your insurance provider may also invest your money and add the reaped profits to your amount. You can then select whether you want to receive your pension on a monthly, quarterly, or half-yearly basis.
The following steps cover the general functioning of annuity plans in UAE –
First, you invest a specific lump sum amount to purchase a suitable annuity plan from a life insurance company
Next, you would be required to decide when you want the income to start. The invested money earns interest until the annuity income begins, with this deferment period being the time frame during which your wealth grows.
As per most plans, you may opt for receiving the monthly amount after your retirement or a few years after you get the plan.
After you reach your retirement age or the deferment period ends, you would receive regular payments of your money at the frequency chosen by you.
For instance, an individual named Salman has purchased an immediate annuity plan and has paid two premiums of AED 100,000 to the insurance company. After the specified period, he can start receiving monthly payments of, say, AED 5,000 for a predetermined period. In case he had opted for a lifetime plan, he would receive a monthly amount till the time he is alive.
As we would expect, the amount would be considerably lower in the second option. For this reason, it is necessary to take all the factors of annuity plans into consideration. Remember that in the case of an immediate annuity, the payout amount depends on market conditions, interest rates, and more.
Annuity plans can broadly be classified into two types – immediate and deferred. You can choose among the two by assessing when you intend to retire and you want the regular income to flow in.
Immediate Annuity Plan: When you invest in an immediate annuity plan, your income begins as soon as the plan is set up. With some plans, you may start receiving the monthly amount a month or two after investing in the plan. If you are approaching your retirement age and immediately require a steady income, you can consider immediate annuity plans.
Deferred Annuity Plan: Deferred annuities are designed to give you a consistent income in the future. These plans can be divided into two phases – the accumulation period, during which your amount is invested and the payout phase, where you start to receive a regular income. As you would guess, this type of plan makes for a great option if you still have a few years until retirement and have other savings and investments.
Based on the payout value and level of risk, annuity plans can also be classified as fixed, variable, and indexed annuities. Discussed below are the key aspects of each category –
Fixed Annuity: These annuities will pay you a definitive amount after your retirement or the period specified by you. The drawback of this predictability is a low annual return that is usually just a little bit higher than a bank's certificate of deposit.
Variable Annuity: Unlike its fixed counterpart, this is a different type of annuity where the value may change in response to the performance of an underlying portfolio of subaccounts. The value of a variable annuity depends on two factors –the principle, which is the amount paid for the annuity, and the returns obtained on the annuity’s underlying investments obtained over time.
With the opportunity of high returns, variable annuities bring great risks as well as the payments primarily depend on how the investments perform. Thus, variable annuity plans don’t make for a prudent option for individuals looking for stable returns.
Indexed Annuity: Indexed annuity plans pay the interest rate on the basis of the performance of a particular market index such as the S&P 500, as their investments are primarily centred around such index funds.
In terms of risk and potential reward, index annuities fall in the middle. While the risk of the markets is not eliminated, index funds in themselves are generally less volatile than regular equities. Moreover, with some plans, only a percentage of your return would depend on the performance of the market index – you would have an assured minimum amount each month.
The most notable annuity plan benefit is the elimination of stress regarding income after retirement, which can free you and let you take care of other expenses without worrying about retirement. This, and some other annuity plan benefits, are discussed below –
Retirement from work does not entail retirement from activity. Post-retirement, you may want to sustain your current standard of living, pick up new interests, or pursue your travel goals. With annuities, you can receive a steady income for the rest of your life and have crucial financial assistance to at least take care of the regular expenses.
Annuity plans are a secure investment for retirement. Barring a few types, most of these plans are low-risk and aid in the growth of your funds by locking in higher rates when you purchase the plan.
Depending on your chosen plan, you may be eligible to receive additional perks such as extra returns, loyalty boosters, and so forth.
With numerous annuity plans available in the UAE, you can plan the finances for your post-retirement life with any of the top plans as per your requirements.
To get you started, we will discuss two of the leading annuity plans in the UAE –
This plan is made to fulfil the requirements of different categories of individuals and can be customised to suit various risk capabilities. This plan allows individuals to switch between investment portfolios and opt for an investment strategy as per their risk appetite.
After retirement, individuals can opt for a lump-sum payout or transfer their perks to an annuity or even an individual pension plan. In addition, this plan can also help individuals in the creation of Sharia-compliant portfolios.
The LIC International annuity plan provides individuals with a comprehensive financial plan to live a comfortable retired life. Their plans come in two options – with life cover and without life cover.
Under the life cover option, if the policyholder passes away, a lump-sum payment equal to the sum assured and any vested bonuses will be made to the nominee. On the other hand, in the plan without a life cover option, the premiums paid will be refunded with interest at the rates periodically determined by the firm.
Annuity plans are among the best financial planning options to ensure a peaceful and stress-free retirement. As they provide you with guaranteed regular income, you won’t have to worry about meeting the day-to-day expenses post-retirement.
Depending on your requirements, you can go for immediate or deferred annuity plans. While the former starts providing the income soon after the investment is made, the latter does so only after a specified term that can extend up to a few years as well.
To ensure that you get the best returns on your plan, it is better to opt for deferred annuity plans as they would let your money grow over considerable time via investment in different types of instruments. Nevertheless, if you immediately require a monthly income, you can opt for the immediate plans. Whichever type of annuity plan you go for, you will ultimately find numerous options and providers for the same in the UAE.
Have a look at some of the most frequently asked questions regarding annuity plans in the UAE –
Some plans provide the monthly amount to the spouse in case the policyholder passes away. Others, however, may stop the payments and simply return the amount originally invested to the spouse/family of the individual. As the payments would depend on the plan, it is advisable to closely examine the documents and connect with the provider for more details.
Taxes may be levied on annuities depending on where the annuity was purchased, the type of annuity, and the medium through which withdrawals are made. You should consult your financial advisor and check out the tax rules applicable as per your plan and location to know more about this.
Any citizen or resident of the UAE can invest in the annuity plans, with most providers allowing individuals between the ages of 30 and 100 years to get these plans.
While pensions are provided only after retirement, you can start receiving annuity much earlier if you wish to and as per the plan’s conditions. Moreover, while annuity plans use the amount invested by you (along with the applicable returns) for the payments, pensions primarily utilise the contributions of the employer for the same.
As annuities are designed to secure your financial future in the long run, investors or traders seeking quick capital gains are unlikely to benefit from such a plan. Similarly, if you don’t have sufficient money to invest in such plans, you can avoid them and opt for investments that require a smaller contribution.
To add to this, deferred annuities should be avoided by individuals who require money right away, as most of these plans contain restrictions and fees with respect to early withdrawal.