For many people, especially those under 30, retirement always seems a long way away and planning for it is does not feature high on their list of life's priorities.
However, the large number of Thais going into retirement unprepared and having insufficient savings and no insurance coverage has proved that it is never too early to start saving for your golden years. The bird that feathers its nest egg early is likely to spend its winter days in a warmer and more comfortable environment.
Pension planning is one way to help strengthen one's financial stability, particularly during the later stages of life.
Pension insurance is offered by insurers to encourage long-term savings and provide a safety net for people in their retirement years.
It is basically a contract between a policyholder and an insurance company specifying pension contributions for which benefits will be paid when the policyholder reaches a specified retirement age or on an earlier exit from the plan.
The policyholder can also enjoy tax privileges offered by the government aimed at boosting long-term savings.
Many pension insurance policies are offered by insurers with a variety of conditions, benefits, features and terms, designed specifically to meet policyholders' demands.
For a start, you should begin by calculating how much you need to save on a monthly basis in order to have sufficient money to enjoy financial independence after retirement.
The sooner you start your savings, the better your financial health is likely to be when you hit your retirement years.
Policyholders can start saving as early as 20 years old and they can begin to receive the fruits of their investment when they reach 55 and generally until 85. AIA, Thai Life Insurance and Alliance Ayudhya Assurance have all extended the maximum age for pension insurance to 90.
Basically, most insurers offer a variety of pension insurance policies with different premium requirements and conditions.
For instance, you purchase a pension insurance policy at the age of 30 and select an annuity contract to start paying you from the age of 60 and the sum insured for the policy is around 1.2 million baht. This means that you will need to pay 20% of premiums per year, which is 40,000 baht for 30 years. This type of pension policy is suitable for a salaried worker who earns regular income.
There are two other options: short-term payments or a single premium payment.
If you opt for short-term payments over five years, then you will have to pay a much larger annual premium: 240,000 baht for a sum insured of 1.2 million baht. This sort of policy is suitable for freelance or self-employed people.
For a single premium, you will need to pay in full at one time and wait to receive annuities after an agreed age, which is usually 55. This sort of policy is good for senior citizens who receive a lump sum from their pension fund or provident fund, as they can pay for the pension policy all at once and receive annuities on a monthly basis.
For example, if you are 55 and receive a lump sum pension payment, you may opt to transfer this amount into pension insurance and get a regular income after your retirement.
Annuities can be on monthly, quarterly or annual basis depending on the contract you select.
If you start saving early for your pension, your financial health is going to be much healthier than those starting much later. Younger policyholders also usually pay lower premiums than older holders because young people have lower health risks.
For instance, if you purchase the pension insurance at the age at 30, your annual premium is likely to be around 8,000 baht; at 50, the annual premium can be as high as 36,000 baht.
Thailand is becoming an ageing society with insufficient government welfare and rising costs of living and medical fees. More old people are having to rely on themselves today than in the past.
To encourage long-term savings, the government has allowed tax privileges for those investing in long-term pension policies.
According to the Finance Ministry, taxpayers are allowed to deduct contributions of up to 15% of their personal income or 500,000 baht, whichever is lower, from investments in retirement mutual funds, provident funds and
pension funds including pension insurance.
Since pension insurance is specifically for long-term savings or retirement savings, other insurance coverage or returns of investments might not be as impressive as those products designed to serve those needs.
It is therefore wise for policyholders to allocate their investments into different kinds of insurance policies and other financial products in order to get better insurance coverage or higher investment yields.