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 pension plan is nevertheless crucial.
Savings get exhausted very fast and are sometimes used in emergencies, so selecting the best pension scheme helps you secure your cash flow for meeting basic daily needs post retirement. When you continuously invest in pension plans, the amount grows manifold due to the compounding effect which makes a lot of difference to your final savings corpus. A right pension scheme lets you plan for retirement in a phased manner. So it is advisable to choose a best pension plan that can act as a savior in your golden years.
What is Retirement Planning?
Retirement Planning can be described as the process to plan the 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 the future expenses, opting for savings program and managing risk and assets.
Please note-It is important to estimate the future financial objectives in order to determine the retirement goals.
The Need for Retirement Planning
In today’s day and age, it is very important to have proper Retirement Planning. It will help you deal with the eventualities after retirement and maintain a good lifestyle in the retirement years. With the help of proper Retirement Planning, you can create a financial cushion for future so that you can live your golden days of retirement in a stress-free and hassle-free way.
Once you start earning, it is important to plan your financial future as soon as possible. For some individuals, Retirement Planning is athing to do in old age. If you need something, you have to make arrangements for the same in advance. That’s whyplanning for a secured financial future with a retirement plan in India while at a young age is a wise thing to do.
When it comes to being financially independent, everyone has their own perspective.Retirement Planning is needed to be planned meticulously after considering the various choices available.
5 Tips for Retirement Planning
Various retirement plans in India ensures a safe and tension-free retirement. They are among the most popular choices for retirement planning. Since there are many different types of retirement plans in India, it is important to analyseyour financial needs before you decide to choose a retirement plan.
Let’s take a look at the top 5 tips of Retirement Planning:
- Save for Retirement Now- Many of us rely on personal savings as a retirement planning option. While the salaried individuals will get 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 quiet comforting. The corpus ought to be adequate enough 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 option of income replacement 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 at a particular time period. Moreover, having an insurance policy at an early stage of life is much easy as the premium rates are relatively less and the policies offer higher coverage as compared to the policy you buy in the later stage of life.
- Diversify your Investments- Retirement Planning doesn’t have to be boring. Since investing only in retirement plans and Pension 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- much before you reach your old age and get retire start saving money according to your retirement needs. For example, as you age the medical expenses automatically increases so secure yourself and your family with proper health insurance so that in case of any critical illness you are covered entirely. Do give a thought on many other factors like which city you want to settle after retirement, a major investment that can take place after retirement etc.
Why Do You Need to Start Retirement Planning Today?
The early on you start planning for your retirement, the more wealth you can create over a long period of time in order to create a secured future after retirement.
Let’s take a look at the reasons why you should start Retirement Planning today:
- With the help of a retirement plan in India, you will be able to take care of the financial needs of the family 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 situation, be it 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 life after retirement as you will not have to be dependent on anyone.
- With proper Retirement Planning, you can maintain a good lifestyle after retirement and can even fulfil 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.
Top 10 Pension Plans in India 2019
Here are the Best Pension Plans in India 2019:
|Pension Plan Name
||Annual Premium Amount
|HDFC Life Click 2 Retire
||18 years - 65 years
||10 or 15 - 35 years
||Rs.24, 000/- minimum
|Edelweiss Tokio Life -Wealth Ultima
||With Little Champ Benefits -Life Insured - 0- 17 yearsPolicyholder - 18 - 55 yearsWithout Little Champ Benefits -Life Insured - 0 - 60 years
||18 - 100 years
||Minimum: 10 yearsMaximum: For 5 - 6 PPT: 70 yearsFor 7PPT and above: 100 years minus age of the policyholder at entry
||Different Sum Assured according to Age
|Bajaj Life Long Goal
||0 years (Life Assured)18 years (Policyholder) - 65 years (Life Assured) and No Limit (Policyholder)
||99 - Entry age of the Life Assured
||Rs.60, 000/ minimum
|Max Life Online Savings Plan - Retirement
||50 years - 75 years
|Future Generali - Big Dreams
||18 years - 75 years
||5 years - 20 years
||Rs.60, 000 minimum
||Regular Pay - 10X Annualize PremiumLimited Pay - 10X Annualize PremiumSingle Pay - 1.25X Single Premium
|HDFC Life Pension Super Plus
||35 years - 65 years
||55 years - 75 years
||10 years - 20 years
||Subject to underwriting
|HDFC Life Personal Pension Plus
||18 years -65 years
||55 years (minimum,75 years (maximum)
||10 years( minimum),40 years(maximum)
||Equal to the policy term
||Rs. 2,04,841 (minimum); Depends on term, age and premium (maximum)
|Canara HSBC Invest 4G Whole Life
||18 years - 55 years
||Age<45 years - 10X Annualize Premium0.5*Term*Annualize PremiumAge >=45 years - 10X Annualize Premium0.25*Term*Annualize Premium
|LIC New Jeevan Akshay
||30 years - 85 years
||Depends on thenetry age and purchase price
|ICICI Pru Easy Retire
||35 years - 70 years
||45 years - 80 years
||10 years - 30 years
||Rs.48, 000/- minimum
Types of Pension Plans in India
Pension Plans are way better investment options that ensure a secure life after retirement. These plans have multiple classifications, based on the plan structure and benefits.These plans can be further divided into 8 categories:
- Deferred Annuity
- Immediate Annuity
- Annuity Certain
- With Cover and Without Cover Pension Plans
- Guaranteed Period Annuity
- Life Annuity
- National Pension Scheme(NPS)
- Pension Funds
- Whole Life ULIPs
Let’s explore these plans in detail:
- Deferred Annuity: A deferred Pension Scheme allows you to accumulate a corpus through regular premium or single premium payment over a policy term. After the policy term is over, the pension will be provided. The advantages of deferred Pension Plans are many and these include tax benefits that are associated with this Pension Scheme. Only 1/3rd of the corpus is tax free on withdrawal and from rest of the 2/3rd of the corpus, it is mandatory to purchase pension that is taxable. Money in pension is locked and cannot be withdrawan for any emergency.
- Adeferred Pension Scheme can be bought by paying one-time payment as well as paying regular premium payments.Therefore, the schemesuits all types of investors be it those who want to invest systematically and those who have a chunk of money to invest.
- Immediate Annuity: Under an immediate annuity scheme, the pension is provided immediately. The policyholder has to pay a lump-sum amount and pension will be provided instantly, basedon the lump-sum amount paid by the policyholder. A range of the annuity options is available to choose from. Moreover, the premiums paid are tax-exempted as per Income Tax Act, 1961.After the death of the policyholder, their nominee will be entitled to get money.
- With Cover and Without Cover Pension Plans: The with coverPension Plans have life cover component in the plan. Upon the death of the policyholder, a lump sum amount is paid to the beneficiary. However, the cover amount is not very high since a large part of the premium is paidtowards growing the corpus rather than covering for life risk.
- Under thewithout coverPension Plan,no life cover is provided. In the event of unfortunate death of the policyholder, the nominee will get the corpus (till the date of the death). Currently, deferred Pension Planscomewith cover and immediate annuity plans comewithout a cover.
- Annuity Certain: Under an annuity certainplan, 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 payment, the annuity will be paid to the beneficiary.
- Guaranteed Period Annuity: Under guaranteed period annuity plan, the annuity is providedto the policyholder for certain periods like 5years,10years,15 years or 20 years, whether or not he survives that duration.
- Life Annuity: As per the lifeannuity plan, the pension amount will be paid to the annuitant until death. After choosing the ‘with spouse’ option, the amount of pension will be given to the spouse of the policyholder, in case of the death of the policyholder.
- National Pension Scheme (NPS): New Pension Schemewasintroduced by the government catering topeople looking to build up a pension amount. The policyholdercan put savings in the New Pension Scheme. Itwill be invested in equity and debt market as per thepreference of the policyholder. The policyholdercan withdraw 60% of the amount at retirement and rest 40% must be used to purchase the annuity. The maturity proceedsare not tax-free.
- Pension Funds: Pension fund is a type of Pension Plan that remains in force for a long period of time.This plan offers comparatively better returns uponmaturity. Pension Fund Regulatory and Development Authority (PFRDA), the government body has allowed 6 companies as fund managers to manage Pension Funds.
- Whole Life ULIPs: Under this plan, the money stays invested for whole life of the policyholder and upon retirement he/she can make partial withdrawals and get tax free income. Additional withdrawals are allowed whenever needed or whenever necessary.
Comparison Between Pension Plans
||New Age Retiement Products (Whole Life ULIP)
||Regular Retirement Product
||National Pension Scheme
||Public Provident Fund
|100% tax free income on Retirement for Life
|Flexibility to withdraw 100% Fund Value
||Yes, withdraw upto 100% of Fund Value anytime after 5 years
||No, withdraw upto 33% of Fund Value upon Retirement
||No, partially withdraw upto 25% of Fund Value after 10 years
||No, partially withdraw upto 50% of Fund Value
|Tax-free Fund Value withdraw
||Yes, withdraw 100% of Fund Value tax free
||No, withdraw upto 33% of Fund Value tax free upon retirement
||No, withdraw upto 60% of Fund Value tax free upon retirement
||Yes, withdraw 100% of Fund Value tax free
|Flexibility to increase, decrease income
|Choice of multiple investment strategy to maximize growth of fund value
|Tax exemption on Amount Invested
||Sec 80 upto 1.5 Lacs
||Sec 80 upto 1.5 Lacs
||Sec 80 CCD (1B) upto 50K & Sec 80 upto 1.5 Lacs
||Sec 80C uptp 1.5 Lacs
Features of Pension Plans
Nowadays, some 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.
In case you want to opt for aPension Plan, ensure the plan has the following features:
The annuity is the most distinctive feature of Pension Plans and generally comes in two types, immediate annuity and deferredannuity. As the name suggests, immediate annuity starts immediately. The insurance company pays the annuity Pension Plan amount right after receivingthe lump sum premium. These plans takethe single premium route so that the insurance company can use the amount invested by the policyholderto build up a corpus for him or her.
The deferred annuity plans start paying a certain sum after a few years. The insurance companies offer a diverse range of Pension Plans for various terms that allow the policyholderto choose the period for which they want to receive the annuity.
If you are looking forward toRetirement Planning, then,optfor the best Pension Plan in India by looking at the offer annuity and the charged premium.
The sum assured is the life insurance cover that the insured receives during the tenure of the Pension Plan. It provides the insured with the much-needed peace as a pre-decided sum assured will be provided to the policyholder’s family in case of the policyholder pass away during the policy tenure.The sum assured is generally provided underwith coverPension Plans. The life insurance companies in India calculate the sum assured in different ways. For instance, a few Pension Plansprovider with a sum assured of say 10 times the premium amount, while others may offera sum assured that equals the fund value of the policy optedby the individual. The calculation varies from company to company. In case, there is no sum assured, then the plan is more in the nature of a pure-play Pension Plan rather than an insurance plan with retirement benefits.
The vesting age is the age ofaninvestor starts receiving the pension income. Depending on policy purchase dateand the type of premium, the vesting age can be your current age if you opt for the Pension Plan payment to start right away (immediate annuity - lump-sum premium) or after a few years such as 10-15 years. The minimum vesting age for most policies is40 years of age but on average it is around 50 years. The maximum vesting age is generally around 70 years, though some insurance companies may offer plans that have a maximum vesting age of up to 79 years or more.
This refers to the period for whichthe premium is paid by the policyholderfor the Pension Plans. Some of the best Pension Plans in India offer the option to the policyholderto start paying off a part of the premium from theamounts they are yet to receive (if any). This decreases the outgo for the policyholderduring the years leading up to retirement and helps them use their money as per their discretion. However, most Pension Planscome with separate periods for accumulation and pay-out. This helps in building up a corpus for the separate to receive a pension.
The payment period, as the name suggests, refers to the period during which the investor starts receiving the payments. This period is generally separate from the accumulation phase and helps the investor to increase theiroverall retirement corpus.
The surrender value of Pension Plans is the amount the insurance company will pay the individual if they surrender the Pension Plan before its maturityif they have paid the premium for theminimum period. A policyholder may need to surrender a plan for various reasons. When aninsured surrenderstheirPension Plan, they lose all benefits offered by the plan, including the life cover, if any.
Minimum Guarantee of Pension Plans
Every Pension Planmust have a minimum guarantee. Every premium paid towards the insurance benefit as well as the maturity benefitmust-have ‘on zero returns’, as instructed by the Insurance Regulatory and Development Authority of India. This should notbe less than one percent of the premiums paid over the years. Though the minimum guarantee is applicableon all variable insurance plans, most companies offer various types of Pension Plans that may offer better returns than the guaranteed plans. This, of course, varies from plan to plan and you should make sure that you pick ones that offer this best return. The minimum guarantee of Pension Plansprovides a guaranteed amount that the policyholder will definitely receive at the end of the policy period.
Factors to Consider While Buying Pension Plans
Here are different factors that should be considered while purchasing a Pension Plan:
- 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, in order to keep up withthe regular monthly expenses of the family, it important to create a financial corpus big enough to take care of all these expenses. Apart from the monthly expenses, it is important to allocate ample fund for the post-retirement unexpected financial emergencies.
- Inflation: While purchasing a Pension Plan, it important to keep in mind the growing inflation rate and plan accordingly that how much corpus will be sufficient enough to maintain a financially secured lifestyle after retirement.
- Life Expectancy: There is no way to correctly predict how long an individual will live. Thus, while purchasing the best Pension Plansyour retirement fund should be sufficient enough to support your financial needs during the old age.
- Medical Expenses: Young people often tend to ignore the future medical expenses. However, when one gets old, they may have to spend a bomb on medical check-ups and treatments. Thus, it is very important that your Pension Plan should provide you with an adequate fund to deal with any type of medical emergencies.
- Assets and Loans: Another important thing that you should consider while purchasing the best Pension Plans is your outstanding loans and current assets. In case you have any outstanding loans, then repay off these loan(s)on time. If you fail to repay the loan(s) on time then it can take away a chunk of the annuity income.
- Understand Your Financial Needs: It is crucial that you understand how much you need to sustain yourself and your dependents after your 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 policies 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: There are various retirement plans 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, the Pension Plans 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 benefit 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 Planningcalculations and choose a plan accordingly.
Advantages of Retirement Plans in India
If you are trying to find the best Pension Plan in India, it will be beneficial to understand the advantages of Retirement Planning and the retirement benefits variousPension Schemes in India offer. Each Pension Scheme in India comes with its own specific retirement benefits,we have mentioned the general advantages of retirement plans.
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 that you assure with a Pension Plan is savings for the long term. Retirement plans India mainly focuses on creating the annuity that can further invest in generating a steady flow of cash for your post-retirement years.
Regular Income after Retirement
The Pension Schemes in India offer a guaranteed income that helps the policyholderto meet theirday-to-dayexpenses. Your current income and future inflation should lay a foundation of yourRetirement Planning as it will help you to compute the money you’ll need post-retirement. Some of the insurance plans offer incomethat ensures that 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 Retirement Planninglane.
The Retirement Planning solutions people invest in provides them with an insurance cover, to financially protect their familyif the worst comes to pass. Most life insurance companies offer an insurance cover benefitunder various retirement plans so that the spouse does not have to face any financial difficulty if the unfortunate happens.
No-Risk in Investment
The retirement plans in India protectthe policyholder againstany kind of investment risks. If your Pension Plan is offered by your employer, then also you need not worry. This is because, even if the downfall in the stock market, the company has to make up to recover the lost money. However, there will not be any negative effecton 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.
Tax Benefits of Pension Plans
The investment you make in the Retirement Planning solutions will help you to save significantly on your tax. In fact, if you plan it well, enjoy the offered tax benefits. Checking the policy details will also allow you to understand if you can avail tax benefits under Section 80C of the Income Tax Act.
Money When You Need It
Some plans offer lump-sum payment that you can use to meet major expenses (if any). In the years leading up to retirement, an individualmay needfunds for various reasons such as buying a flat or paying for children’s wedding. Some pension plansofferto withdraw a large chunk of your corpus to meet financial emergencies. Checkingthe 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.
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 age of retirement and the inclusions that you may want. You can pay a lump sum of approximately Rs.5 Lakh in one go and immediately start getting annuity payment. Or you may go for a differed annuity policy to get more interest before the start of payout.
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.
You can choose ULIP
With retirement plans in India, you can go for the option of a Unit-Linked Insurance Plans. Under a ULIP,your money willbe invested in equity and debt fundsor safer government securities as per your preference. Based on the market returns,you canget a huge corpus at your retirement. Itcan help you to maintain your lifestyle without making any compromises.
Note- For detailed information of thepension plan, read the plan brochure. You can log on to PolicyBazaar.com, to compare the best retirement plan in India for you.
How to Calculate the Return of Pension Plans?
While it is important to strategically planyour retirement and generate aretirement corpus, 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 caneasily calculate the return of pension plans. You will need to enter information such as your savings, your expenditure,your current financial liabilities, the total sum required and monthly expenses.Based on the information, the pension plan’s returns can be calculated.
Best Time to Invest in Retirement Plans in India
The early you plan your retirement by optingfor retirement plans in India, the higher returns you will get from your policy. So, it is good to start investing as early as you get your first salary. However, initially, you can start with small amounts and gradually with an increase in your salary you can increase this contribution also.
Why Do I Need a Retirement Plan?
A retirement plan is as important as a health insurance plan. Here are the reasons why:
You won’t be able to Work Always
Thereare some peoplewho want to work until the last day of your life. Due to ageing, poor health condition will stop most of the people from working. For such times, 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.
To Save for Medical Emergencies
The older you get, you becomemore prone to develop/ contract health issues. Ageing 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 reason to opt for a retirement plan.
A medical emergency may leave a big hole in your pocket especially post-retirement.Having a retirement plan can help you keep such financial crises at bay.
To Check-off Your Bucket List
From childhood to old age,you might have made so many compromises such as not pursuing your dreams, travel plansetc. However, if you have planned your retirement gracefully by opting for one of the best retirement plans in India, you can check off your bucket list items easily.
To Stay Financially Independent
By being financially independent, you will not become a burden for your children during your post-retirement life. This will not only give you mental peace,but it will also give your family (children) a sense of satisfaction that their parents are financially sound.
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).
Eligibility for Retirement Plans in India
The three main eligibility criteriafor 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 Planis 18 years. However, there are some companies that have setthe entry age for pension plansis 30 years. In the same way, there is a maximum entry age forthe Pension Plans.In most cases, it is around 70 years.
- Premium: There is a minimum premium payment that the policyholder has to payfor 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 cango up to the limit provided by the insurance provider.
Pension Plans - Latest News 2018-19
In the latest budget released by the Indian Government, it announced the launch of term policies with zero GST, which will encourage people to buy term policies, and hence, eventually help the country to have a better GDP percentage for life insurance schemes. As annuity schemes in India have always been taxable, they have always been considered as an unattractive investment option. The government has thus, made a big move to make term insurance plans available at zero GST or at a minimum rate of 5% to deepen financial inclusion amongst the middle-class investors. There isn’t also much attention focussed towards the health & protection needs of the middle and lower income class individuals. Allowing tax deduction provisions for life & health insurance schemes under Section 80 will help address the needs of this class, which forms a major chunk of the country’s population.
Under budget 2018, the Finance Minister of India has proposed the extension of scheme Pradhanmantri Vaya Vandana Yojana(PMVVY) till March, 2020. Moreover, it has also been proposed by the FM that the current limit of investment will increase to Rs 15 lakh from the pre-existing limit of Rs 7.5 lakh for every senior citizen. PMVVY is a government backed pension scheme that was introduced to secure the future of senior citizens in India. The scheme was launched on May 4th 2017 and was initially available for 1 year. The amount invested in PMVVY is known as purchase price. As per the pension plan option chosen by an individual i.e. (monthly, quarterly, yearly), the pension is provided as arrears starting from the end of the period chosen. Based on the amount invested, the maximum tenure of the policy is 10 years. The increase in the investment limit is proved to be beneficial to seniors.
A throng of 1,22,000 workers have signed a deal to switch to a new pension scheme backed by TATA Steel UK after they were affected by the end of the 15 billion pound pension scheme. According to the reports, it has been confirmed that approximately 97,000 members have indicated their shift from British English Pension Scheme to the New Plan by returning their option form, whereas, just 14% of the members chose to stick with the old pension scheme. As a part of the biggest pension conference conducted in the UK, the options form was distributed to around 1,22,000 scheme’s members. Among which 97,000 members filled the forms completely and returned them. TATA Steel UK has welcomed the outcome of the conference conducted as a positive choice. However, the spokesperson of the company has stated that much work is still required to deliver a secure future for their UK business.
In his Budget speech 2018, Finance Minister Arun Jaitley focused on caring for the senior citizens. He announced various tax & related incentives to decrease the fiscal burden on people above 60 years of age and above. All these moves are very welcome since senior-citizens face rising health-care expenses and depend upon their income earned from interest & pension. From affording a 5-fold increment in the tax exemption limit on income earned from savings, recurring deposits and fixed deposits held with post offices and banks of Rs.50, 000, to eliminating the tax deducted at source on this income, budget 2018 offers well-deserved relief to senior citizens. This is done by leaving a more money in the hands of senior citizens savers who are totally dependent on earned interest to meet their day to day expenses. Another tax change is the offer to increase the yearly tax deduction limit for medical insurance premium or/and medical reimbursement to Rs. 50,000 for the elderly. An applause-worthy step is setting the ceiling for tax deduction for medical costs incurred on specific critical diseases to Rs. 1 lakh, regardless of the age of the senior citizen.
Payment banks and small finance banks can now offer the Atal Pension Yojana or APY. The Central government believes that such a move will considerably increase the coverage of the plan. The government is of the opinion that these banks will strengthen the current distribution channels of the APY scheme. As per the Ministry of Finance, this step will further help in boosting outreach to subscribers under the scheme. As of now, ten small finance banks and eleven payment banks have obtained licenses from RBI to initiate banking operations in India. Participation in Atal Pension Yojana helps in building a pensioned society and also provides viable fee revenue to banks by way of alluring incentives for mobilizing the scheme at the rate of Rs 120 to 150 per account. As per government reports, by the end of January 2018, more than 84 lakh subscriptions were registered under the scheme.
Indians resumed their position of best placed in retirement planning in a global survey conducted by Aegon Retirement Readiness Index (ARRI), in 2017. The superannuation survey was done among 15 countries. Aegon Retirement Readiness Survey 2017, was based on 6 parameters including - personal responsibility of the respondents, mindfulness, financial understanding and responsibilities, retirement planning, and income replacement. ARRI said that the report is not illustrative of the general population and is directed towards the medium and high-income earners across these cities. India ranks the highest on the ARRI score index with 7.6 score, among the 15 major economies of the world. US, Brazil, China and UK follow the trail with a score of 6.9, 6.4, 6.3 and 6.2 respectively. Spain (4.7) and Japan (5.1) scored the lowest on the index.
In a major decision taken by the Indian Government, it has decided to allocate a total of Rs 50 lakh crore for the infrastructure, in the budget released for the current financial year. At the same time, there are also certain provisions introduced in the budget to improve the life of retirees/senior citizens. “A life of dignity” comes with the confidence to ensure the income security of senior citizens in India. SelFIES (Standard of Living indexed, Forward-starting, Income-only Securities) is a long-term bond introduced to help retirees lead their pre-retirement lifestyle even after their retirement. Most of the times, part-time employees, people from low-income group, rural workers, etc. can’t save enough for their retirement due to the obvious lack of funds. SeLFIES will give them access to invest in low-cost, safe and liquid bonds issued by the Indian Government. Financial literacy rate in India is still relatively low; hence, SeLFIES is a welcoming change that will allow people to access their funds when they actually need it, eventually simplifying the process of retirement planning.
In a latest statement released by the Madurai Bench of the Madras High Court, the Madurai Bench has favoured an appeal to grant freedom fighter pension to a senior citizen. Earlier, the claimant, Govindarajulu, 91 years of age, was denied pension based on the fact that he was not able to fulfil the specified eligibility criteria for the requirement. According to the set criteria to claim freedom fighter’s pension, the claimant should already have attained the age of 18 at the time of her or his imprisonment. Also, s/he is required to submit a copy of jail records by the authorized committee. In an earlier judgement, Govindarajulu was denied pension, stating that he wasn’t able to submit relevant documents to specify his date of birth. In its statement, the Madras High Court has expressed regrets and apologized for the state’s insensitive approach toward the whole matter. In the latest statement released, Justice K Ravichandra Babu chided the system for its ‘bureaucratic dogmatism” and said that pension facility for freedom fighters is not a charity done by the government, but is a bestowal of honour for those who fought for our freedom. In the judgement released by the Madras High Court, the Tamil Nadu Government has been ordered to grant the pension for Govindarajulu in two weeks.
The Kerala state government is to appoint a ‘committee’ to analyze the socio-economic & legal significance of the CPS (Contributory Pension Scheme). The committee will analyze the effects of 2 facets of the CPS: the transfer of states’ funds to (private) fund managers and the co-occurring existence of 2 schemes in the state- the statutory schemes and the contributory schemes. An announcement was made by finance minister of Kerala Dr. T M Thomas Isaac in a reply to a Calling Attention motion put forward by MLA Mullakkara Ratnakaran. Mr. Ratnakaran demanded the establishment of a ‘commission’ for studying pension plans. Dr. Isaac has accepted Mr. Ratnakaran’s demand for specifying a time-duration for the committee to present its report. The committee members and schedule are yet to be announced later. As per the contributory pension scheme, a government employee contributes a decided percentage of his/her basic salary, it is then combined with the dearness allowance and an equal portion is contributed by the government. A pension fund manager will be entrusted with the same. The fund manager will invest the money in the shares and mutual funds.
Looking at the fluctuations in the equity market, Indians have now started opting for traditional pension plans as well as life insurance plans instead of ULIPs
. As reported by Insurance Regulatory and Development Authority, people are now inclined more towards life insurance policies such as life insurance (67.8% of products in the market were purchased). Moreover, 18.6% pension plans were purchased in the financial year 2015-16. The sales of these products have increased as compared to year-on-year sale.
Sales of ULIPs have gone down, and its contribution to the insurance pool has slipped from 16.1% (2014-15) to 13.6% (2015-16). Out of Rs. 25 lakh crore invested by life insurance policies, only Rs. 3.4 lakh crore was from ULIPs. The traditional products have a major share in the current market. In this sector, life funds contributed Rs 16.9 lakh crore. Moreover, Rs 4.6 lakh crore was the contribution of the pension funds.
Written By: PolicyBazaar - Updated: 16 December 2019