Pension plans also known as retirement plans are investment plans that lets you allocate a part of your savings to accumulate over a period of time and provide you with steady income after retirement. Even if a person has a good amount of savings, a retirement plan is nevertheless crucial. Savings get exhausted very fast and are sometimes used in emergencies, so selecting the best 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. A right pension plan lets you plan for retirement in a phased manner. So it is advisable to choose a best retirement plan that can act as a savior in your golden years.
Nowadays, people start planning for the retirement life at an early stage so that at a later stage they do not have to depend on others to make their ends meet. Usually, a conventional retirement plan encompasses following features-
Every pension plan needs to have a minimum guarantee. As per IRDA guidelines, there should be "on-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.
A retirement plan is a crucial investment, considering the prevailing inflation rate. Retirement plans vary in terms of their benefits and structure. Broadly, these plans can be further divided under below heads-
Deferred Annuity: A deferred annuity plan allows you to accumulate a corpus through regular premiums or single premium over a policy term. After the policy term is over, pension will begin. The advantages of deferred annuity plans are immense and these include tax benefits that are associated with this plan. No tax is levied on the money that an individual invests in the plan unless he withdraws it. As deferred annuity plan can be bought by making one-time payment or by making regular contributions towards it, therefore, the plan suits to all types of investors: those who want to invest systematically and those who have a chunk of money to invest.
Immediate Annuity: In an immediate annuity plan, pension begins immediately. One has to deposit a lump sum amount and pension will start instantly Based on the lump-sum amount, the policyholder will invest at prevailing annuity rates. You can choose your annuity from different annuity payout options. Morever, you can enjoy tax benefits on the premiums paid as per Indian Income Tax Rules. After the death of a policyholder, his nominee will be entitled to get money.
With Cover and Without Cover Pension 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. However, 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. The corpus built till date (after deducting unpaid premium and other expenses) is given out to the nominee in case of the death of a policyholder. Presently, deferred annuity plans are "with cover" and immediate annuity plans are "without cover".
Annuity Certain: As per this clause, annuity is paid to the annuitant for specific number of years. The annuitant can choose the period and if he dies before exhausting all payments, annuity will be paid to beneficiary.
Guaranteed Period Annuity: As per this annuity option, annuity is given to the life assured for certain periods like 5,10,15 or 20 years, whether or not he survives that duration.
Life Annuity: 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, pension will 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.
Pension Funds: 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, they perform better. Pension Fund Regulatory and Development Authority (PFRDA), the government body has allowed 6 companies as fund managers.
As stated above, retirement plans ensure that your financial independency remains intact even when your source of income ceases to exist. So, it is prudent to compare available pension plans in the market to make unbiased decision and choose a best plan. We at PolicyBazaar, understand your woes and advise you to make a systematic comparison of all plans before zeroing in on one retirement plan.
Choose an apt retirement plan and take one step towards a secured and prosperous future.
What are Pension Plans?
Pension plans are savings and investment plans that provide you with income after retirement. These plans help you build a retirement corpus which is invested on maturity to generate a regular stream of monthly income to cover your expenses.
Why Pension Plan?
Pension plans help you save regularly and build a corpus for your future after retirement. These plans help you get a regular income so that you can maintain your current lifestyle post retirement too. Saving in such plans also has tax benefits.
How much investment do I need?
The amount of investment in a pension plan shall depend on how much monthly income do you require in your post retirement years. Use retirement calculators to calculate your investment to get your desired pension amount.
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