After hard work of years and years, the phase of retirement comes and everyone imagines that phase as a relaxed time. However, the major factor that plays an important role in making the retirement of an individual as ‘relaxed’ is financial stability. This is because being financial stable one can maintain his/her lifestyle and live a peaceful and independent life and this all can be achieved by planning retirement in the productive years of life itself. This is where the old age pension plan comes into the picture.
A Old Age pension plan is a type of investment plan wherein a part of one’s savings is allocated for saving for a specific period of time to provide regular income after retirement. In this way, a retirement plan or retirement plan ensures a regular monthly flow of income when one gets retired. For example, the Public Provident Fund is one of the most popular retirement plans.
The early one starts investing in retirement plans, the more money he/she accumulates for his/her golden retirement years. In addition to this, a well-selected retirement plan helps an individual to even rise above inflation. This is because of the corpus (gains and investment) accumulated by the age of retirement can also take care of the cost of healthcare and other lifestyle needs.
Who Should Take Old Age Pension Plans?
Anyone who wants to secure his/her post-retirement period should opt for an old age pension plan. Since there are many plans available in the market so it may become difficult for an individual to select the best-suited plan. Therefore, it is suggested to select a plan after careful understanding of all the types of pension plans provided.
Categories of Old Age Pension Plans
Mentioned below are different types of retirement plans available:
1. Immediate Annuity: In this type of pension plan an individual has to deposit a certain amount in lump-sum and the pension starts instantly according to the amount of investment. The premiums that an insured pays towards vridha pension are eligible for Income Tax exemption. Moreover, in case of death of the policyholder his/, her nominee gets the money according to the selected option. This type of plans also provide various annuity options, which are:
- Life Annuity: In this type of annuity, the amount of pension is paid to the annuitant until his/her death. However, if an individual chooses an option wherein the spouse is also included, then the pension is also given to the policyholder’s spouse.
- Guaranteed Period Annuity/ Annuity Certain: The annuity is provided for a specific period of time to the policyholder. The annuitant or policyholder has all the rights to select this period and if he/she dies before the policy exhausts, then the annuity is given to the nominee. Most of the plans under this category provide an annuity for a certain period such as 20, 15, 10, or 5 years whether one survives for that time period or not.
2. Deferred Annuity: Under this pension category, the corpus is accumulated through single premium or regular premiums over the entire policy term. The pension begins as soon as the term of the policy completes. This type of pension plans offers massive benefits one of which is tax benefits.
3. National Pension Scheme (NPS): The Nation Pension Scheme in India was launched by the Government of India for common people so that they can easily accumulate some amount for their retirement years. However, with NPS one can now put his/her money in the debt and equity market according to his/her preference. In addition to this, one can withdraw 60% of his/her invested amount at the time of retirement and the remaining 40% is used for the purchase of an annuity. Note: The maturity amount attracts tax.
4. Pension Plans With and Without Cover: With cover pension plan contains a component of life cover and pays the lump-sum amount to the policyholder’s family on his/her death. The cover amount is not high in ‘with cover’ plan as the majority of the part is directed towards the growth of the corpus than providing life risk cover. While in ‘without cover' scheme ‘no life cover’ is provided and in the situation of the unfortunate death of the policyholder, the nominee gets the accumulated corpus.
5. Pension Funds: To invest in pension funds is one of the smartest options because these plans stay in force for a longer period of time and as well offer better maturity returns.
Advantages of Old Age Pension Plans
- Guaranteed Income Even When One has Retired: A pension plan serves the purpose of lifestyle maintenance even when one gets retired. By selecting an appropriate plan one can live a financially independent life even when one is not earning in his/her golden years. However, before investing in any retirement plan, it is suggested to calculate retirement corpus with the help of a retirement calculator.
- Liquidity: It is a product with low liquidity. There are many insurance companies that provide pension funds in India to enable insured to withdraw the pension money even at the accumulation stage. In this way, one is always ready financially to face any unforeseen situations that require money by investing his/her money in this plan. Moreover, this plan prevents an insured from taking a loan from banks under such issues.
- Death Benefit: Most of the vridha pension plans provide guaranteed death benefits. The death benefit is the advantage that the nominee of the insured gets in case of the unforeseen demise of the insured during his/her pension tenure. The death benefit is most of the times 105% of the total premiums paid by the policyholder till his/her death.
- Tax Benefits: The premiums paid against old age pension plan attract tax benefit under section 80C of the Income Tax Act, 1961. Along with this, there are some other sections as well of the Income Tax Act under which the tax benefits are given, these sections are – 80CCC and 80CCD.
- Period of Payment: The payment period is the time frame during which the pension is provided to the policyholder after his/her retirement. Suppose, one gets a pension from 60 years to 75 years, then his/her period of payment is 15 years.
- Maturity Age: The age when an insured start getting the monthly income is considered as the maturity or vesting age.
- Duration of Accumulation: The time duration in which the corpus is accumulated. For example, if one starts paying for a pension plan from 30 years of age and pays till 60 years, then accumulation duration is 30 years.
Top Pension Plans in India
|Name of the Pension Plan||Age to Enter (Years)||Maturity Age (Years)||Term of Policy (Years)|
|Bajaj Allianz Retire Rich||30 to 73||N/A||7 to 30|
|HDFC Life Assured Pension Plan – ULIP Pension Plans||18 to 65||45 to 75||10 to 35|
|BSLI Empower Pension – SP Plan||25 to 70||80||N/A|
|Aegon Life Guaranteed Income Advantage Insurance Plan||20 to 55||85||85 to entry age|
|HDFC Life Guaranteed Pension Plan||35 to 65||55 to 75||10 to 20|
|HDFC Life Pension Super Plus||35 to 65||55 to 75||10 to 20|
|HDFC Life Personal Pension Plus||18 to 65||55 to 75||10 to 45|
|LIC Jeevan Nidhi||20 to 60||55 to 65||5 to 35|
|LIC Jeevan Akshay VI||30 to 85||N/A||N/A|
|Reliance Smart Pension Plan||8 to 65||45 to 75||10 to 30|
|Reliance Immediate Annuity Plan||20 to 80||N/A||N/A|
|SBI Life – Saral Pension||18 years for Regular Pay and60 years for Single Pay||40 to 70||Regular Pay – 10 yearsSingle Pay – 5 years40|
Documents to Purchase a Pension Policy in India
Mentioned below is the list of documents required to purchase pension policy in India:
- Age proof: Any of the below-mentioned documents can be presented as an age proof:
- Birth certificate
- Driving License
- Voter ID
- Marks sheet of high school
- Address Proof: Any of the below-mentioned documents can be presented as residential proof:
- Telephone bill
- Electricity bill
- Ration card
- Aadhar card
- Driving License
- Identity Proof: Any of the below-mentioned documents can be shown as identity proof:
- Voter ID
- Driving License
- Aadhar Card
- PAN Card
- Income Proof: Any of the below-mentioned documents can be presented as income proof:
- Income Tax Return file
- Bank statement
- Salary Slip
- Medical Reports: Some insurance providers may require a report of health check-up before accepting any proposal of a pension plan.
- Submission of Proposal Form: A policy prospect should submit a duly filled and signed proposal form.
Tips for Selecting the Most Suitable Old Age Pension Plan
Mentioned below are the tips to select the most suitable virdha pension plan:
- A person who wants to take an old age pension plan must make a broad estimate of his/her future financial requirements.
- An individual is suggested to closely observe his/her current income and expenditure.
- The person should also know the minimum and maximum amount that he/she can invest in a retirement plan.
- Perform deep research of all the available plans, read all the available benefits, the maturity benefits, and then select a plan.
- Never select a pension plan just because of its tax-friendliness and cheap cost.
Rider or Add-Ons in Pension Plans
Today majority of the insurance plans come with options to improve the coverage, these options are known as riders or add-ons and so does the old age pension plans. Most of the pension plans come with the following riders:
- Premium waiver rider
- Rider for critical illness
- Rider to increase or decrease the term of the policy
- Rider for accidental death or dismemberment
Must Read: Retirement Planning
Question 1: Do I need to keep some points in mind before purchasing an old age pension plan?
Answer: The first thing that one should keep in mind before buying any Vridha Pension plan is deciding his/her age of retirement, current salary, and the amount that he/she can invest for a long term. After this one should use a retirement calculator to calculate the amount that he/she may want at the time of his/her retirement. After this comparing various plans on the parameter of annuity, vesting age, surrender charges, maturity benefits, death benefits, and premiums. And after these steps, last but not the least point before finalizing any plan is seeking financial advice from the financial experts.
Question 2: Should I opt for a ULIP pension plan or a Traditional pension plan?
Answer: ULIP pension plan provides the dual benefits of investment and insurance whereas a traditional pension plan only saves money for one’s retirement period. If an individual is planning to invest for more than 10 years, then it is suggested to invest in ULIP pension plans as the investment in equity market gives good returns over the long term invested amount. However, the charges can be higher for ULIP pension plans, so it depends upon an individual to select the most suitable plan.
Question 3: Can I withdraw money from my pension plan before its maturity?
Answer: Yes, one can make early withdrawals from his/her old age pension plan. However, there are some restrictions and regulations applicable to the early withdrawals of the money.
Question 4: Can I surrender my pension plan before maturity? What will happen if I do the same?
Answer: Yes, one can surrender his/her pension plan before the maturity and may get the surrender value. But, the surrender value received is taxable according to the tax slabs. In addition to this, one may need to pay the taxes that were exempted for the premiums that one has paid until he/she has left the plan. However, it is recommended to discuss tax consultant before surrendering a pension plan.
Question 5: What is the meaning of annuity in a pension plan?
Answer: The systematic payouts are known as an annuity in pension plans. The annuity is received from the pension plan after retirement. One can select the annuity premium mode, which can be a yearly, half-yearly, quarterly, or monthly basis.
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