Direction (Qs.1 to 10): Read the passage carefully and answer the questions given below it. There are some blanks given in the passage based on which some questions are framed, and some words are highlighted as well to help you answer some of the questions.

Annuities are pension products that provide regular payout and have always been sold as an attractive option to retirees by insurance companies. With interest rates on fixed deposits (FDs) and small savings schemes falling, your agent may be pushing harder to sell annuities to you. The sales pitch is _____ (A): that annuities can help you lock in the rates for life in a falling interest rate scenario. (B) But before you fall (a) for a similar sales compared (b), remember that annuity products, typically, provide (c) low returns pitch (d) to other fixed income products and are not tax-efficient. In fact, financial planners recommend this product only in certain scenarios. Read on to know when it makes sense to buy this product and in what scenario you should stay clear of it. What are annuities? Historically, interest rates have been falling in India. For instance, Public Provident Fund, which offered 11-12% per annum in the 1990s, gives 7.9% currently. An annuity plans lets a retiree lock into the existing interest rates. Say, a 60-year-old buys an annuity plan where the annual payout comes to 6% of the corpus. After a decade or two, if the interest rates decline to, say, 4-5%, the investor will continue to receive 6%. (C) Remember that the converse is also true:/ if interest rates happen to rise,/ the retiree continue to get/ the lower rate he signed up for. Annuity plans also reduce the _____ (D) risk as they guarantee a fixed income for life. They also tackle reinvestment risk. A retiree faces the risks of outliving his corpus or finding a drop in interest rates upon reinvestments. Annuities can handle these, though at a cost— the monthly payout is even lower than a public sector bank’s FD rates of 10 years at present. What doesn’t work (E) Low returns: Annuity plans have never been popular (a) with retirees (b) as they offer low (c) interest rates than other fixed-income options (d) available. The interest rates on annuities differ depending on the variant you choose to invest in. One of the popular options—life annuity with return of purchase price—works like an FD. (F) The investor earns an income for life, _____. The annual payout on this variant typically works out to 5.7-6.4% of the purchase price for someone who is 60. Another popular option is lifetime annuity, without the return of the initial investment. The rate of interest—7.6-8.1% per annum—in this option is the highest among all variants as the insurer doesn’t need to return the funds to a nominee.

On the other hand, the Senior Citizen Savings Scheme gives an interest rate of 8.6% per annum. The biggest non-banking finance companies, considered as safe as a large private bank, offer rates up to 7.75-8.35% for senior citizens on their FDs. The return on Pradhan Mantri Vaya Vandana Yojana comes to around 8%. Tax inefficiency: What further reduces the returns is the fact that the pension income is subjected to tax. The payout is added to the income of the receiver and taxed at marginal rates. In comparison, senior citizens enjoy a tax advantage when they invest in FDs or small savings schemes. They get a tax deduction of up to Rs.50,000 on the income from these two instruments. (G) In Budget 2018, the finance minister had introduced (a) a new Section 80TTB that specified (b) individuals above 60 to claim (c) income-tax deduction on interest income from allows (d) products. Lack of liquidity: Once a person buys an annuity plan, the money is locked away permanently. Under no circumstances can the investor touch this money. “For us, this is one of the key reasons for not recommending annuities. A senior cannot access his funds in an annuity plan even in emergencies,” said MalharMajumder, a Kolkata-based financial planner and partner, Positive Vibes Consulting and Advisory. (H) Despite the aspects / that don’t work for annuities, / retirees can look at them in small doses, / accorded to financial planners. “If a retiree has a surplus corpus, only then he should invest in an annuity plan. Annuities would be the last option after the senior has taken care of his living expenses and has exhausted other options,” said Suresh Sadagopan, founder, Ladder 7 Financial Advisories, a Mumbai-based financial planning firm. Scenario 1: Lack of liquidity in an annuity product can be a blessing for some. (I) Financial planners point out that it is common for retirees_____. They may give a portion to their children to buy a house or bail them out from financial difficulties. (J) “If a retiree doesn’t have enough (a) savings and can take an helping (b) decision of emotional (c) children, we would suggest putting (d) a part of the retirement savings in annuities. In the retirement years, a person cannot afford to be dependent on anyone, not even their children,” said Sadagopan.