Pension Plans

What is Pension Plan?

A pension 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 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.

Best Pension Plans in India 2023

Here are some of the best pension plans in India 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 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 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 The amount invested in a deferred pension plan is locked and cannot be withdrawn for any emergency.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.

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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.

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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.

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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.

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9. Whole Life ULIPs

   Under this whole life ulips 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.

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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.

Benefits of Pension Plans

Buying a pension plan online comes with a lot of benefits. Take a look at them below:

Annuity

An annuity is the fixed amount an investor will receive each year throughout their life tenure. annuity can be immediate or deferred depending upon the nature.

Sum Assured

The sum assured is a definite amount offered to the nominee of the plan at the end of the plan tenure. It is generally 10X the annual premium or the fund value of the policy.

Vesting Age

The vesting age is the age when the investors starts receiving the monthly pension from their pension plan.

Payment Period

The payment period is when the investor starts receiving the payments post-retirement.

Accumulation Period

The accumulation period is the complete time period wherein the investor pays regular premium towards their policy or plan.

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.

What is Retirement Planning?

Advantages of Retirement Plans in India

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

Further, here we have mentioned some of the advantages offered by the pension scheme in India.

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.

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Importance of Retirement Plan

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

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:

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.

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