Pension plans also known as retirement plans are investment plans that let you allocate part of savings to accumulate over a period of time and provide you with steady income after retirement. As an Individual bread earner of your family you can only work for as long; at some point your income may cease to exist and hence the need to secure your retirement lifestyle. Pension Plans let you divert a part of your current income to cover your post retirement living. With the ever increasing rise in cost of living, it has become imperative that one should make arrangements for living a comfortable retired life.
Necessity of Retirement Plan in Your Life
Even if a person has accumulated good amount of savings over working life, a retirement plan is imperative; savings get exhausted very fast and are sometimes used in emergencies. A retirement plan helps you secure your cash flow for meeting basic daily needs post retirement. When you continuously invest in retirement plans the amount grows manifold due to the compounding effect which makes a lot of difference to your final savings corpus. Pension plan lets you plan for retirement in a phased manner.
Features and Benefits of Pension Plans
Every pension plan needs to have a minimum guarantee. As per IRDA guidelines, there should be “non-zero returns” on all premiums or guaranteed maturity benefits. Most insurance companies guarantee a minimum of one percent of total premium over the complete policy term.
The final payout is provided in two ways. 33% of final pay out can be withdrawn in lump sum and is not taxable. However the rest of the amount is taxable.
Types of Retirement Plans
A deferred annuity plan allows you to accumulate a corpus through regular premiums or single premiums over a policy term. After the policy term is over, pension will begin.
In an immediate annuity plan, pension begins immediately. One has to deposit a lump sum amount and pension will begin instantly.
'With cover' and 'without cover' plans
The ‘with cover’ pension plans have life cover component in the plan. This implies that on the death of the policyholder, a lump sum amount is paid to the family members although the cover amount is not very high since a large part of premium is diverted towards growing the corpus rather than covering for life risk. The ‘without cover’ pension plan implies that there is no life cover. Presently, deferred annuity plans are ‘with cover’ and immediate annuity plans are ‘without cover’.
As per this clause, annuity is paid to the annuitant for specific number of years. The annuitant can choose the period. If annuitant dies before the policy term, the annuity will be paid to beneficiary.
Guaranteed Period Annuity
As per this annuity option, annuity is provided to the annuitant for the period and beyond. If annuitant dies during the period, amount will be paid to the beneficiary. If annuitant survives, pension will continue throughout life.
As per this annuity option, pension amount will be paid to the annuitant until death. If annuitant chooses “with spouse” option, after the death of annuitant, the pension will continue and be paid to the spouse.
National Pension Scheme (NPS)
New Pension scheme has been introduced by the government for people looking to build up pension amount. You can put savings in new pension scheme which will be invested in equity and debt market as per your preference. You can withdraw 60% of amount at retirement and rest 40% must be used to purchase annuity. The maturity amount is not tax free.
Owing to the low front load charges, pension funds are a good way to accumulate corpus amount. Pension funds are meant for long term and hence perform better. PFRDA, the government body has allowed 6 companies as fund managers.
Compare Pension Plans
It is imperative to choose a pension plan which offers the best possible returns. That can only be determined by comparing the different pension plans available in the market. Compare different pension plans at Policybazaar and buy the best pension plan today.
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