Types of Retirement Plans

Retirement plans are as well known as pension plans. These are the investment plans wherein you can invest a part of your savings for accumulation over some time. The sole purpose of these plans is to provide financial security post-retirement. In this way, well-planned retirement by investing in such plans lets you live with dignity as you do not have to compromise on your standard of living when you stop working. Since the cost of living and inflation go hand in hand retirement planning has become an important part of our lives.

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Life is very unpredictable and emergencies can come anytime, so opting for the best retirement plan can help to ensure a smooth post-retirement life. Continuous investment in a suitable pension plan provides you multiplied amount of money because of the compounding nature of these plans. This is the reason it is advisable to select the most suitable retirement policy from some of the best available retirement plans that you think aligns with your expenditure and income.

There are many types of retirement plans that are offered by various companies, these are:

National Pension Scheme

NPS or National Pension Scheme is a type of pension plan that is implemented by the Government of India. It is a social security scheme that aids the employees of all the sectors until they become 60 years old. During this tenure, they can invest in the National Pension Scheme and withdraw the maximum of 60% of their accumulated corpus as soon as they turn 60 years old. The balance amount is given back as a pension for a lifetime in the form of annuity pay-outs. In NPS the premiums that are collected are invested in four types of asset classes – Corporate debt, Equity, Alternative Investment Funds, and Government Bonds. In these asset classes, equity exposure is limited to a maximum of 75%. NPS offers the safety of your investment as it invests the money in comparatively safer investment options. NPS as well offers flexibility by allowing the investors to switch as per your specific requirements by receiving a lump sum amount that is limited to 60% of the accumulated corpus at the age of 60. NPS operates under the Pension Regulatory and Development Authority (PFRDA).

Traditional Pension Plan

This pension plan has four options – A pension plan with Life Cover, a regular pension plan, a pension plan with deferred annuity payments, and a pension plan with immediate annuity payments. Let us understand these options in detail

  1. Pension Plan with Life Cover

    This plan takes out a portion of your investment as a premium of your life cover through a term insurance policy for a specific sum assured. Generally, the premiums of term insurance plans are comparatively low. In this way, under this pension plan, the nominee gets the sum assured when the policyholder dies within the term of the policy. The nominee will also get the sum accumulated since the policy has started until the policyholder’s demise.

  2. Regular Pension Plan

    This pension plan invests all the money that you have invested in this plan and you get corpus when the term ends. This corpus also includes the interest that you have earned. Under this plan, if the policyholder dies within the term of the policy, the nominee gets the corpus with the earned interest until the policyholder dies.

  3. Pension Plan with Differed Annuity Payments

    This plan enables you to get accumulate a corpus by paying the premiums during the tenure of the policy. At the end of this tenure, the interest that you have earned and the premiums that you have paid together make a sizeable corpus. This enables you to buy an annuity and earn a pension on regular basis. Most of the time, the pension plans with differed annuity payments also come with life insurance coverage.

  4. Pension Plan with Immediate Annuity Payments

    This pension plan allows you to start earning a regular income from the month that follows the investment month. This means that soon after you start investing in the policy. This is like earning monthly interest from a bank fixed deposit.

    All the aforementioned pension plans are as well known as traditional pension plans because the premiums that are paid towards your investment is invested in conservative debt and government securities that are considered safe. These plans are offered by many insurance providers.

Unit Linked Pension Plans

Traditional pension policies invest the premiums that they get from you in a safe investment option like debt and government securities. However, those who are aggressive investors and have a high-risk appetite can invest in pension plans that invest a substantial portion of your money that you have given as premiums too high risk – high return investment options like non-government securities, money market, stocks, and bonds. These policies are known as Unit Linked Investment Plans or ULIPs. The main feature of such plans is that the invested component is shown by investing the funds in instruments of equity. These pension plans offer opportunities to the policyholders of different risk profiles like high, medium, and low. One is allowed to switch among the plans during the policy tenure at his/her discretion as per some terms and conditions. Unit Linked Pension Plans as well have a life assured component for providing the cover in case of premature death of the policyholder. The returns in these plans are not guaranteed, however, one can expect a reasonable return that is consistent with the changes in the stock market. As per the history, investments that are held for a long term in the stock market have given good returns. Therefore, at the end of the tenure of the policy, a policyholder has an option to withdraw his/her invested amount at the prevailing NAV of the opted fund or he/she can continue to invest.

Wrapping It Up!

Our elders always suggest investing our money and saving for our after-retirement life is always a good way to enjoy our golden years. The aforementioned are some of the best investment options that we can choose as a pension plan.  We can choose a plan as per our suitability and enjoy our post-retirement life gracefully.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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