Ch. 6: Bonus In A Non-Linked Pension Accumulation Plan - All You Need To Know in 2023

Besides helping you invest your savings in a systematic manner to accumulate a retirement fund, a Non-Linked Pension Accumulation Plan also offers bonuses. Yes, you read that right. There are several types of bonuses payable under this plan.

We’ll learn about these bonuses in this article. First, let’s understand the meaning of bonuses and how they are calculated under a Non-Linked Pension Accumulation Fund.

As we read above, a Non-Linked Pension Accumulation Plan helps you accumulate a retirement fund. In exchange, however, you’re required to pay premiums under it. The premiums you pay are the asset of the insurer. Now, when other people invest in a Non-Linked Pension Accumulation Plan, their premiums become a part of the insurer’s asset pool too.

Instead of letting these accumulated funds sit idly, insurance companies invest these funds in various debt, equity, and other financial instruments - to earn a profit.

Based on these profits, insurance companies determine the bonus. Since the profit may fluctuate every year, the bonus payable, too, will change every year. So, the bonus payable under a Non-Linked Pension Accumulation Plan depends on -

• The insurance company you buy from.
• Type of policy you opt for.
• How long the policy is in force.

Please note: The bonus will be payable only under a Non-Linked Participating Pension Accumulation Plan.

The method of calculation of bonus depends on two factors - the product you buy and the insurance company you buy from.

Generally, the bonus is determined either as -

• A percentage of the total premiums paid
  Let’s say Ashi, 40, invests in a participating non-linked pension accumulation plan to build a retirement fund. She plans on retiring at the age of 60. She pays a premium of Rs 1.5 Lakh on a yearly basis and chooses a policy term of 20 years. Let’s assume that the bonus will be 3% of the total premiums Ashi pays
  
  Total Premiums Paid = 1,50,000 X 20
  = Rs. 30,00,000
  
  Bonus Payable = 3% X Total Premiums Paid
  = 3% of 30,00,000
  = Rs. 2,70,000
  
  Thus, Ashi is eligible to receive a bonus of Rs. 2,70,000.


• A certain amount per Rs. 1,000 of the guaranteed sum assured, which will be equal to the total premiums paid
  Let’s take Ashi’s example again and assume that the bonus payable to her will be calculated as Rs. 30 for each Rs 1,000 of the guaranteed sum assured in her policy.
  
  Bonus Payable = 30 x (30,00,000 ÷ 1000) = Rs 90,000
  
  So, here, Ashi will receive a bonus of Rs. 90,000.

There are 3 types of bonuses payable under a Participating Non-Linked Pension Accumulation Plan. They are -

• Reversionary Bonus

  This bonus is declared at the end of every financial year. It, however, is not paid immediately. It keeps getting accumulated under your plan every year and is paid along with the death or maturity benefit. So, the insurer will pay the bonus to you when the policy matures or to your nominee if you pass away while the plan is active.
  
  The reversionary bonus rate is calculated as a certain percentage of the total premiums paid.
  

  Reversionary Bonus = Total Premiums Paid X Reversionary Bonus Rate declared by the Insurance Company

  
  Reversionary bonus is further categorised as -
  
  • Simple Reversionary Bonus
    Simple Reversionary Bonus is calculated by multiplying the reversionary bonus rate declared by the insurer with the guaranteed maturity benefit payable under your policy.
    
    

    Simple Reversionary Bonus = Reversionary Bonus Rate X Guaranteed Sum Assured

    
    This bonus will keep accumulating under your policy on a yearly basis until it expires or in case you pass away, whichever happens first. And, it will be paid along with the maturity or death benefit.
  
  
  • Compound Reversionary Bonus
    Compound Reversionary Bonus is similar to the Simple Reversionary Bonus - with just one difference. It is calculated by multiplying both the guaranteed sum assured and the bonus that has already been accumulated in the previous year with the reversionary bonus rate.



• Terminal Bonus

  Similar to the Reversionary Bonus, this bonus is paid to you on policy maturity or to your nominee in case you pass away in the middle of the policy tenure. This bonus, however, is not guaranteed - it will be paid at the insurance company’s discretion.
  
  It is offered by the insurance company to acknowledge the timely premium payments you make, and your commitment to the policy throughout the duration.



• Interim Bonus

  Generally, insurance companies declare the bonus at the end of every financial year. However, in case the policy matures or death occurs between consecutive bonus declaration dates, an interim bonus will be payable.
  
  Interim bonus is calculated on the basis of remaining days from the previous bonus date. And, it is paid so that you or your nominee don't lose out on any benefits.

So, these are the main types of bonuses payable under a Non-Linked Pension Accumulation Plan. You can ask your financial advisor or go through the benefit illustration of the plan you’re purchasing to understand how much bonus will be payable under it - before going ahead.