Why Unit Linked Pension Schemes Are Gaining Popularity Amid Rising Inflation in India

Rising inflation has emerged as one of the biggest challenges for households in 2025. With higher costs of healthcare, housing, and everyday essentials, Indians are rethinking how to secure their financial futures. Among the many retirement planning products available, unit linked pension schemes are gaining attention for their unique ability to combine market-linked returns with long-term protection. These schemes are part of the broader ULIP family, which has evolved into a flexible and disciplined financial tool. To understand why they are becoming popular, it is essential to first clarify what is ULIP and how pension-focused versions differ from other plans.

What is ULIP?

A Unit Linked Insurance Plan, or ULIP, is a hybrid product that merges life insurance with investment. A portion of the premium provides insurance cover, while the remainder is invested in market-linked funds such as equity, debt, or balanced options. This dual advantage ensures both financial protection for dependants and wealth creation for long-term goals.

ULIPs are flexible because investors can switch between funds, choose premium terms, and align the policy to financial objectives. While many people use ULIPs for wealth creation or child education, others prefer pension-focused variants that specifically build a retirement corpus. These are known as unit linked pension schemes.

Why unit linked pension schemes matter today

Retirement planning is no longer an optional exercise. With rising inflation and longer life expectancy, individuals must ensure that their retirement income keeps pace with future expenses. Traditional pension products often fail to match inflation-adjusted returns, leaving retirees with inadequate funds.

Unit linked pension schemes address this problem by investing in market-linked instruments, offering the potential for higher growth compared to fixed-income options. At the same time, they retain the protection element of insurance, making them more comprehensive than standalone investments.

Key features of unit linked pension schemes

Unit linked pension products in 2025 are designed to meet modern retirement needs. Their most notable features include:

• Dual benefit – Life insurance cover along with retirement corpus creation.
  Market-linked returns – Investment in equity and debt funds helps beat inflation.
  Flexibility – Choice to switch funds based on risk appetite and market conditions.
  Annuity options – On maturity, policyholders can convert corpus into a steady stream of income.
• Tax benefits – Premiums often qualify for tax deductions under existing laws.
  Long-term discipline – Regular premiums ensure consistent savings for retirement.
• These features make ULIP pensions especially relevant in an inflationary economy where costs escalate steadily.

How inflation drives demand

Inflation erodes purchasing power, meaning that a fixed retirement income quickly loses value. For example, Rs. 50,000 per month may feel sufficient today, but in 20 years the same amount may not cover even basic expenses.

A unit linked pension mitigates this by growing the retirement corpus through equity and debt exposure. Even though markets are volatile in the short term, long-term compounding allows the retirement fund to keep pace with inflation. This advantage explains why more individuals are choosing ULIP pensions over traditional annuity or endowment products.

Comparing ULIP pensions with traditional pension plans

This comparison shows why ULIP pensions are attractive in 2025: they provide higher growth potential while still offering insurance security.

Role of annuities in unit linked pensions

At the end of the policy term, the accumulated corpus in a unit linked pension is typically used to purchase an annuity. This ensures a steady stream of income during retirement years. Policyholders can choose annuity options such as:

• Lifetime income for self.
  Lifetime income for self and spouse.
  Income with return of purchase price to heirs.
• These options make retirement planning more predictable, even as inflation rises. The combination of growth during accumulation and stability during retirement makes ULIP pensions highly relevant today.

Suitability across life stages

• Young professionals – Early investors benefit from compounding and lower premiums, ensuring a strong retirement fund.
  Mid-career earners – ULIP pensions help balance current obligations with long-term savings.
  Pre-retirees – They can use these plans to boost their corpus while also ensuring family protection.
• Because inflation affects all income groups, ULIP pensions suit a wide range of individuals who want growth and security.

Points to consider before buying

While unit linked pension products offer clear advantages, investors should keep in mind:

• Long-term commitment – Exiting early may lead to lower returns due to charges.
  Market risk – Returns are not guaranteed, though risk reduces over long durations.
  Choice of funds – Equity exposure is important to beat inflation, but balance is necessary.
  Regular reviews – Monitoring fund performance ensures alignment with retirement goals.
• Using online calculators can help estimate the retirement corpus and annuity income expected, making decisions more precise.

Conclusion

Rising inflation in India has made retirement planning more complex, but also more urgent. A unit linked pension provides a practical solution by combining life insurance with market-linked investments, ensuring that retirement savings grow at a pace that matches rising costs. Understanding what is ULIP and how pension variants work helps individuals appreciate their dual advantage: protection during the earning years and income security post-retirement.

With features like fund flexibility, annuity options, and tax efficiency, ULIP pensions are becoming an integral part of long-term financial planning in 2025. For individuals seeking to safeguard their future against inflation while ensuring family protection, unit linked pension schemes offer one of the most effective strategies available today.