Pension Plans (Retirement Plans)

What is Pension Plan?

A pension or retirement plan is a type of investment plan that helps you accumulate a part of your savings over a long-term period to have a secured financial future. It helps you to deal with uncertainties post-retirement and ensures a steady flow of income after retirement. Even if a person has a good amount of savings, a pension plan is nevertheless crucial.

Pension plans in India help you to create a financial cushion in the long term so that you can ensure to have a financially sound future after retirement. In a retirement plan, the insured must contribute a specific amount regularly until the time of retirement. The accumulated amount is given back to the insured as a pension or annuity at regular intervals of time. Best pension plans in India not only secure the individual's financial future after retirement but also help an individual deal with the eventualities post-retirement.

Savings get exhausted very fast and are sometimes used in emergencies. Thus, it is very important to choose the best pension scheme so that you secure your cash flow for meeting basic daily needs post-retirement. When you continuously invest in a pension plan, the amount multiplies due to the benefit of the power of compounding, which makes a lot of difference to your final savings corpus.

Best Pension Plans in India 2023

Here are some of the best retirement plans in India 2023 available in the market.

Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer. The tax benefit is subject to changes in tax laws. *Standard T&C Apply

Types of Pension Plans in India

A wide range of pension plans in India are available to cater to the insurance seekers' requirements. These plans have multiple classifications based on the plan structure and benefits. These pension plans can be further divided into eight categories:

Let's explore these pension funds in detail:

1. Deferred Annuity

   A Deferred Pension Scheme allows you to accumulate a corpus through regular premium or single premium payments over a policy term. After the completion of the policy tenure, the pension is provided to the insured. The deferred pension scheme offers various benefits, including tax exemption.

   In a deferred pension plan, only 1/3rd of the corpus is tax-free on withdrawal, whereas 2/3rd of the corpus is taxable. The amount invested in a deferred pension plan is locked and cannot be withdrawn for any emergency.

   A deferred pension scheme can be bought by paying one-time payments as well as paying regular premiums. Therefore, these pension schemes are suitable for all types of investors, be it those who want to invest systematically or those who have a chunk of money to invest in one go.

2. Immediate Annuity

   Under an immediate annuity scheme, the pension is provided immediately. The policyholder has to pay a lump-sum amount, and a pension will be provided instantly, based on the lump-sum amount paid by the policyholder.

   Under the immediate annuity pension scheme, the insured can choose from a range of annuity options. Moreover, the premiums paid are tax-exempted as per Income Tax Act, 1961. In an immediate annuity retirement plan, the policy nominee is entitled to receive the money in case of the insured person's demise during the policy's tenure.

3. Annuity Certain

   Under this pension plan option, the annuity is paid to the annuitant for a specific number of years. The annuitant can choose the period, and if they pass away before receiving all complete payments, the annuity will be paid to the policy's beneficiary.

4. With Cover and Without Cover Pension Plans

   With cover pension plans have a life cover component the plan. Upon the policyholder's death, the policy's beneficiary pays a lump sum amount. However, the cover amount is not very high since a large part of the premium is paid towards growing the corpus rather than covering life risk.

   Under the cover pension plan, no life cover is offered to the insured person. In the event of the unfortunate death of the insured person, the nominee will get the corpus (till the date of the death). Currently, deferred pension schemes come with the option of life cover, whereas immediate annuity plans do not offer the option of life cover.

5. Guaranteed Period Annuity

   Under a guaranteed period annuity plan, the annuity is provided to the policyholder for certain periods like 5 years, 10 years, 15 years, or 20 years, whether or not the insured survives that duration.

6. Life Annuity

   Under the life annuity plan, the pension amount will be paid to the annuitant until death. After choosing the option of 'with the spouse,' the pension amount will be given to the policyholder's spouse in case of the policyholder's death.

7. National Pension Scheme (NPS)

   The Government of India introduced New Pension Scheme to secure the financial future of the individual after retirement. As per an individual's preference, the money invested in the National Pension Scheme is put in equity and debt funds to generate returns on investment. The policyholder can withdraw 60% of the amount at retirement, and the rest 40% of the amount is used to purchase the annuity. The maturity proceeds are not tax-free.

8. Pension Funds

   The pension fund is a type of pension scheme that remains in force for a long period. This pension plan offers a comparatively better return upon maturity and is regulated by the Government under the Pension Fund Regulatory and Development Authority (PFRDA).

   Besides, pension funds provide better returns during the maturity period when one compares to the other and remains active for a specified period. Insurance providers offer pension funds intended to empower policyholders to pull back their annuity sum at the hour of the aggregation stage. This component guarantees that the sum is constantly arranged for an unexpected crisis if it emerges. Above all, it keeps you from relying on banks for a loan under such circumstances.

9. Whole Life ULIPs

   Under this option of the pension plan, the money stays invested for the whole life of the insured, and upon retirement, they can make partial withdrawals and get tax-free income. Additional withdrawals are allowed whenever needed or whenever necessary.

10. Defined Benefit

    Defined benefit plans ensure that you pay a specific amount from the retirement income for life. It is decided on the premise of the pension amount, which is formulated keeping into account your earnings as well as the number of years you have served with the employer. This implies that you and your employer can contribute easily to most plans.

11. Defined Contribution

    In a defined contribution plan, the retirement income is not guaranteed; however, the contributions are. Within this plan, both you and your employer can easily contribute to the plan. Some of the contributions that you make may be matched by your employer.

    You are answerable for contributing all commitments to develop your investment funds. The sum accessible for your retirement relies upon the all-out contributions made to your record and the investment returns this cash earned.

12. HDFC Life Insurance

    HDFC Life Insurance offers specialized pension plans in India for you and your loved ones. With customized coverages and benefits, it is best suited for individuals who need complete protection at affordable costs.

13. SIMPLE IRA

    Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Account (IRA), or SIMPLE IRA, is a retirement savings plan especially designed for small businesses with 100 or less employees. It is an easy and suitable option for employees of small businesses.

14. SEP-IRA

    Simplified Employee Pension (SEP) Individual Retirement Account (IRA), or SEP-IRA, is a pension plan that can be opted for either by self-employed or employers to meet their retirement needs. Tax deductions are applicable under the SEP-IRA, and contributions are made to employees as per their eligibility.

15. Roth IRA

    A special Individual Retirement Account (IRA), Roth IRA, is a pension plan in which an individual pays tax on the money deposited in their bank account every time, but all withdrawals will be tax-free in the future.

Comparison between Pension Plans

For a better understanding, here we have shown a tabular comparison of different pension schemes in India.

Features and Benefits of Retirement Pension Plans

In today's day and age, people start planning for retirement living at an early stage so that at the later stage, they do not have to depend on others to make ends meet.

In case you want to opt for a Pension Plan, ensure that the plan you choose has the following features:

1. Annuity

   An annuity is the fixed amount an investor will receive each year throughout their life tenure. An annuity can be immediate or deferred depending upon the nature. As the name suggests, an immediate annuity starts immediately. The insurance company pays the pension plan annuity amount right after receiving the lump sum premium. An immediate annuity pension fund comes with the option of a single premium payment so that the insurance company can use the amount invested by the policyholder to build up a corpus.

   The deferred annuity pension plan starts paying a certain sum after a few years. The insurance companies offer a diverse range of plan options for different terms that allow the policyholder to choose the period for which they want to receive the annuity.

2. Sum Assured

   The sum assured is a pre-defined amount offered to the insured during the policy's tenure. The sum assured amount is generally offered as a death or maturity benefit under with cover pension plan. The insurance companies determine the sum assured amount in different ways.

   Under some pension schemes, the sum assured amount is determined as 10 times the annual premium paid, while others may offer a sum assured that equals the fund value of the policy opted by the individual. In case there is no sum assured, then the plan is more like a pure pension plan rather than an insurance plan with a pension scheme.

3. Vesting Age

   The vesting age is the age when the investors begin to receive the monthly pension. For example, most pension plans keep their minimum vesting age at 45 or 50 years. The vesting age in a pension scheme is flexible up to the age of 70 years. However, some insurance companies allow the vesting age to be up to 90 years. 

4. Accumulation Period

   The investors can either pay the premium in one go as a lump-sum investment or at periodic intervals. The premium invested is accumulated over a long-term period to create a financial cushion for the future. If you start investing at the age of 30 and continue to invest until you turn 60, then the accumulation period of the pension plan will be 30 years. Your pension for the chosen period majorly comes from this corpus.

5. Payment Period

   As the name suggests, the payment period is when the investor starts receiving the payments post-retirement. For instance, if an individual receives a pension from the age of 60 to 75 years, then the payment period of the pension plan will be 15 years. In most pension plans, the accumulation phase is kept separate from the payment period. However, some pension schemes also offer partial or complete withdrawal during accumulation.

6. Surrender Value

   The surrender value of pension plans is the amount the insurance company will pay the individual if they surrender the plan before its maturity if they have paid the premium for the minimum period. When an insured surrenders their pension plan, they lose all benefits offered by the plan, including the life cover, if any.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Minimum Guarantee of Pension Plans

Every pension plan must have a minimum guarantee. Every premium paid towards the insurance and maturity benefits must have 'on zero returns,' as instructed by the Insurance Regulatory and Development Authority of India. This should not be less than 1% of the premiums paid over the years.

Though the minimum guarantee is applicable on all variable insurance plans, most companies offer various types of Pension Plans that may offer better returns than the guaranteed plans. This varies from plan to plan, and you should make sure that you pick the ones that offer the best return. The minimum guarantee of pension plans provides a guaranteed amount that the policyholder will receive at the end of the policy period.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Factors to Consider While Buying Pension Scheme

Here are different factors that should be considered while purchasing best Pension Plan in India:

Monthly Expenses: While planning for retirement, it is very important to keep in mind the monthly expenses. After retirement, the regular source of income is cut-off. Thus, to keep up with the family's monthly expenses, it is important to create a financial corpus big enough to take care of them. Apart from the monthly expenses, it is important to allocate ample funds for unexpected post-retirement financial emergencies.

Inflation: While purchasing a Pension Plan, it is important to consider the growing inflation rate and plan accordingly how much corpus will be sufficient to maintain a financially secured lifestyle after retirement.

Life Expectancy: There is no way to predict how long an individual will live correctly. Thus, while purchasing the best pension plans, your retirement fund should be sufficient enough to support your financial needs during old age.

Medical Expenses: Young people often tend to ignore their future medical expenses. However, one may have to spend a bomb on medical check-ups and treatments when one gets old. Thus, your pension plan must provide you with an adequate fund to deal with any type of medical emergency.

Assets and Loans: Your outstanding loans and current assets are other important things you should consider while purchasing the best Pension Plans. If you have any outstanding loans, repay these loans (s) on time. If you fail to repay the loan(s) on time, it can take away a chunk of the annuity income.

Understand Your Financial Needs: You must understand how much you need to sustain yourself and your dependents after retirement.

Do Some Research: Read through the pension plan details in depth to understand what you are signing up for. The pension details in the pension scheme will offer information on the periodicity of your income, how much is guaranteed, how much is dependent on market performance etc.

Understand the Different Products: Various retirement plans are available in the market. Shortlist the ones that will fulfill your financial expectations.

Know About Other Retirement Planning Options: Do not stick to a retirement planning solution just because someone says so. One product that suits your friend may not suit you. Look up the provident funds or pension funds offered by the asset management companies and those offered by the insurance companies to get what you need.

Do Not Look at Only the Tax Benefits: Consider tax benefits as a secondary benefit instead of a primary benefit. If you opt for a retirement plan, considering only the tax benefits, you might not be able to build up the corpus you need for your retirement. So, do your retirement planning calculations and choose a plan accordingly.

What is Retirement Planning?

Retirement Planning can be described as the process of planning long-term and short-term financial goals and the ways to accomplish these goals. Retirement Planning involves identifying different income sources, analyzing the financial objectives, estimating future expenses, opting for a savings program, and managing risk and assets.

Planning for retirement is, instead, a life-long process. Even though one can start their retirement at any age, it works best when an individual includes this factor into their financial planning from the beginning. Planning for retirement from an early stage of life is the best way to ensure a secured, safe and fun retirement.

Let's take a look at the key takeaway of retirement planning.

• Retirement planning can be described as the financial planning of investment, savings, and final distribution of money to sustain oneself at the time of retirement.

• Various popular investment options allow individuals to accumulate funds with the advantage of tax benefits.

• While planning for retirement, it is important to consider factors like future liabilities, expenses, life expectancy, and assets and income.

• The earlier one starts planning for retirement, the better fund one can accumulate over a long period to have a secured life after retirement.

Retirement Planning Goals

It is important to note that planning for retirement starts way before an individual gets retired—the sooner, the better. Even though the amount of money one requires to retire comfortably is entirely personalized, various rules of thumb can provide an idea of how much to save.

Here we have taken an example to help you understand how much retirement corpus one needs at the time of retirement.

Mr. Kumar is 42 years old married man and is currently working in a private company in the position of senior product manager. His wife is the only member of the family who is dependent on him. Mr. Kumar wants to retire at the age of 60.

He currently earns Rs. 80,000 per month, while his monthly expense is Rs. 52,000, including the insurance premium and mutual fund investments. He is adequately insured and has created an emergency fund of 6 months. Considering the abovementioned information, let's look at how much retirement corpus he needs during retirement.

To maintain the same lifestyle after retirement, Mr. Kumar will require approximately Rs.2.12 crore to live a secure life after retirement.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Advantages of Retirement Plans in India

If you are trying to find the best pension plan in India, it is very important to understand the advantages of retirement planning and the benefits offered by various pension schemes in India. Each pension scheme in India comes with its specific retirement benefits. Further, here we have mentioned some of the advantages offered by the pension scheme in India.

1. Savings for a Longer Term

   Irrespective of the premium payment mode selected by you, which can be multiple small payouts or a lump sum payment, one thing you assure with a retirement plan is savings for the long term. Pension scheme India mainly focuses on creating an annuity that can further invest in generating a steady flow of cash for your post-retirement years.

2. Regular Income after Retirement

   The pension scheme in India offers a guaranteed income that helps the policyholder to meet their day-to-day expenses. Your current income and future inflation should lay the foundation of your retirement planning as it will help you to compute the money you'll need post-retirement. Some insurance plans offer income that ensures the policyholder does not have to worry about the future. Since these life-income plans offer better returns, it is a smart way to walk down the lane of retirement planning.

3. Insurance Cover

   The retirement planning solutions people invest in provide them with an insurance cover to protect their family if the worst comes to pass financially. Most life insurance companies offer an insurance cover benefit under various retirement plans, so the spouse does not have to face any financial difficulty if the unfortunate happens.

4. No-Risk in Investment

   The pension schemes in India protect the policyholder against any kind of investment risk. If your employer offers your pension plan, then also you need not worry. This is because, even with the stock market downfall, the company has to make up to recover the lost money.

   However, there will not be any negative effect on your retirement benefit. Moreover, even if your company goes bankrupt, nothing happens to your pension even then. This is because the government entity- the Pension Benefit Guaranty Corporation, takes care of your pension payouts.

5. Tax Benefits of Pension Plans

   Your investment in retirement planning solutions will help you save significantly on your tax. If you plan it well, enjoy the offered tax benefits. Checking the policy details will also allow you to understand if you can avail of tax benefits under Section 80C of the Income Tax Act.

6. Money When You Need It

   Some plans offer lump-sum payments that you can use to meet major expenses (if any). In the years leading up to retirement, an individual may need funds for various reasons, such as buying a flat or paying for a children's wedding. Some pension plans offer to withdraw a large chunk of your corpus to meet financial emergencies. Checking the policy details for the various plans will help you in Retirement Planning, as you will be able to pick the ones that suit your future financial expectations.

7. Different Plans Caters to Different Individuals

   While buying a retirement plan in India, you will get numerous options. These options will be according to the retirement age and the inclusions you may want. You can pay a lump sum of approximately Rs.5 Lakh in one go and immediately start getting annuity payments. Or you may go for a deferred annuity policy to get more interest before the start of the payout.

8. Option to Enhance the Protection

   By opting for an add-on rider, you can enhance the coverage of your retirement plans in India. Some retirement plan riders worth considering are disability due to an accident rider, critical illness rider, etc.

9. You can choose ULIP

   With pension schemes in India, you can go for the option of a Unit-Linked Insurance Plan. Under a ULIP, your money will be invested in equity and debt funds or safer government securities as per your preference. You can get a huge corpus based on the market returns at your retirement. It can help you to maintain your lifestyle without making any compromises.

   Note- For detailed information on the pension plan, read the plan brochure. You can log on to PolicyBazaar.com to compare the best retirement plan in India for you.

Why Do You Need to Start the Retirement Planning Today?

The early on you start planning for your retirement, the more wealth you can create over a long period to create a secure future after retirement. Let's take a look at the reason why you should start retirement planning today.

• With the help of the retirement plan in India, you will be able to take care of the family's financial needs after retirement, as it will provide you with a source of income post-retirement.

• The money saved for retirement can help you deal with any type of emergency, whether wealth-wise or health-wise, in the future.

• One of the most important advantages of retirement planning is that you can live a stress-free retirement life after retirement as you will not have to depend on anyone.

• With proper retirement planning and investing in the right pension plan, you can maintain a good lifestyle after retirement and even fulfill your unfulfilled desires that you couldn't early on in your life.

• With the help of pension funds in India, you can assure a guaranteed income after retirement as an annuity to take care of your monthly expenses.

Importance of Retirement Plan

A pension scheme is as important as a health insurance plan. Here are the reasons why:

1. You won't be able to Work Always

   Some people want to work until the last day of their life. Due to aging, poor health will stop most people from working. In such cases, having a regular source of income works as a virtue. Retirement plans can provide a regular source of income even when you will not be able to work.

2. To Save for Medical Emergencies

   The older you get, become more prone to develop/ contract health issues. Aging doesn't only affect your health, it affects your pocket as well. After retirement, one of the most recurring expenses is medical expenses. If you don't have a senior citizen plan, you have all the more reasons to opt for a retirement plan.

   A medical emergency may leave a big hole in your pocket, especially post-retirement. Having a pension scheme can help you keep such financial crises at bay.

3. To Check -off Your Bucket List

   You might have made many compromises from childhood to old age, such as not pursuing your dreams, travel plans, etc. However, you can easily check off your bucket list items if you have planned your retirement gracefully by opting for one of India's best retirement plans.

4. To Stay Financially Independent

   By being financially independent, you will not become a burden to your children during your post-retirement life. This will give you mental peace and give your family (children) a sense of satisfaction that their parents are financially sound.

5. You Can Help your Family as Well

   Another benefit of retiring gracefully with retirement plans is being able to help out your family in their bad time or when they need (if need be).

5 Tips for Retirement Planning

Various retirement plans in India ensure a safe and tension-free retirement. They are among the most popular choices for retirement planning. Since there are many different types of pension plans in India, it is important to analyze your financial needs before choosing a retirement plan.

Let's take a look at the top 5 tips for Retirement Planning:

• Save for retirement Now- Many of us rely on personal savings as a retirement planning option. While the salaried individuals will have pension income after retirement and the self-employed will have savings, opting for a pension plan early on in life always works as a lifesaver.

• Be Prepared for Future Financial Emergencies- Since most people have only one source of income, having a retirement corpus to fall back on during the golden phase of your life will be pretty comforting. The corpus should be adequate to take care of your future financial emergencies.

• Explore various insurance options- In case you have any dependents, then life insurance serves as the primary income replacement option for those who depend on you. In case you don't have any dependents, then you can invest your income in different investment instruments where it can multiply, and you can receive a good return on your investment during a particular period.

• Diversify your Investments- Retirement Planning doesn't have to be boring. Since investing only in retirement plans may not be enough to support your financial situation after retirement, you consider putting your money in different investment instruments for long-term capital appreciation and return. Moreover, various investment plans also provide a tax advantage to individuals

• Think about Your Retirement Wants- Before you reach your old age and retire, start saving money according to your retirement needs. For example, as you age, the medical expenses automatically increase, so secure yourself and your family with proper health insurance so that you are covered entirely in case of any critical illness. Do give a thought to many other factors like which city you want to settle in after retirement, a major investment that can take place after retirement, etc.

Eligibility for Retirement Plans in India

The three main eligibility criteria for purchasing retirement plans in India are:

• Entry Age: You can purchase a Pension Plan only after you attain a certain age. There are different age brackets for different insurance plans, but generally, the minimum entry age for a Pension Plan is 18 years. However, some companies have set the entry age for these plans as 30 years. In the same way, there is a maximum entry age for the pension fund. In most cases, it is around 70 years.

• Premium: There is a minimum premium payment that the policyholder has to pay for taking a Pension Plan. This is because the pension is received according to the premium paid by the policyholder.

• Vesting Age: This is the age at which the policyholder starts getting a pension. Generally, it is set at 40 years. It can go up to the limit provided by the insurance provider.

How to Calculate the Return of Pension Scheme?

While it is important to plan your retirement and generate a retirement corpus strategically, an investor should opt for a retirement plan based on the offered returns.

Here is how you can calculate the return of pension plans:

With the help of the online pension calculator, you can easily calculate the return of pension plans. You will need to enter information such as your savings, expenditure, current financial liabilities, the total sum required, and monthly expenses. Based on the information, the pension scheme returns can be calculated.

FAQ's