What are the Pension Schemes and Their Benefits?

Pension plans or retirement plans are specifically designed investment plan which helps the individual to create a financial cushion for future by allocating a part of their savings. Pension plans help the individuals to secure life after retirement financially so that they can have a steady flow of income after retirement.          

Pension plans are generally divided into two categories; in the first category, the fund is accumulated by paying the premium and in second category the sum assured accumulated is distributed as regular income after retirement.

Types of Pension scheme in India

Let’s take a look at the types of pension schemes available in India.

Deferred Annuity Plans

Under this pension scheme, the policyholder can accumulate fund by paying regular premium through the tenure of the policy. After the completion of the policy tenure, the pension is paid to the insured as regular income. Along with the benefit of providing financial security to the insured, the plan also provides the benefit of tax exemption.

Immediate Annuity Plan

Under this plan, the pension is paid immediately to the insurance holder. Once the insured deposits the lump-sum amount, the insurance company starts giving the pension immediately based on the amount invested by the insured. Moreover, the premium paid towards the policy is also tax exempted U/S 80C of Income Tax Act 1961.

Besides this, in case of policyholder’s death, the beneficiary or nominee of the policy is eligible to receive the money as per the options was chosen by the insured.

Annuity Options Offered Under Immediate Annuity are:

• Guaranteed Period Annuity / Annuity Certain: Under this option, the insurer pays an annuity to the annuitant for a particular number of years. Under this plan option, the pension is offered to the annuitant for a specific period of 5, 10, 15 or 20 years. in case of demise of the policyholder within the tenure of the policy, the pension amount is paid to the nominee of the policy.
• Life Annuity Plans: Under life annuity option the pension amount is paid to the annuitant till the time of his/her demise. In case, the insured opts for the option of with spouse then the pension is paid to the spouse in case of the insured demise.

With Cover and without Cover Pension Plan

With cover pension plan includes the component of life insurance. Under this option, a lump-sum amount is paid to the beneficiary of the policy in the event of unfortunate demise of the policyholder. With cover, plan option does not provide higher insurance coverage as the premium amount is diverted towards savings in order to secure the life after retirement.

On contrary to this, without cover pension plan does not provide any life cover. Thus, in case of disease of the insurance holder, the nominee of the policy will get only the premium amount paid till the death of the insured.

National Pension Scheme (NPS)

National Pension Scheme was specifically introduced by the government in order to help the individual to create a financial cushion for the future so that they can secure life after retirement. Under NPS, the amount invested by an individual is invested in money market instruments life equity and debt according to one’s own preference. Moreover, under this scheme, the person can withdraw 60% of the retirement amount and can use the rest 40% of the amount to purchase the annuity.

Pension Fund

A pension fund is a lucrative option of long-term investment, as this plan offers higher returns on investment at maturity and comes with long policy tenure.

Benefits of the Pension Scheme in India

Liquidity

Pension plan is generally low liquidity product. However, there are many insurance providers that offer a pension plan which enables the insured to withdraw the pension amount during the time of accumulation stage. This feature helps the insured to be prepared against any type of emergency situation

Guaranteed Income/Pension

Pension scheme in India provides an opportunity for the insured to accumulate wealth for the future so that they can have continues flow of income after retirement. Pension plan enables the individuals to plan in advance so that they can live their golden days of retirement in a stress-free and hassle-free way. In order to avail the best pension scheme in India, it is advised that the insurance buyer should take help of the pension calculator so that they can estimate the amount they will require to secure their retirement future.

Tax Benefit

The insurance holder can avail Pension Plan tax benefit under section 80C of Income Tax Act 1961. Apart from this, under VI-A of Section 80C, Section 80CCC and Section 80CCD of IT Act 1961, the insured can avail the tax exemption. For instance, The National Pension Scheme (NPS) and Atal Pension Yojana (APY) offers the benefit of tax exemption under section 80CCD of IT Act 9161.

Death Benefit

The pension scheme in India also offers guaranteed death benefit to the beneficiary of the policy in case of the insured death during the policy tenure. The death benefit paid to the nominee is 105% of the total premium paid. There are many pension plans which offer the benefit of top-ups which the insured can avail while purchasing the plan. In case the plan has been discontinuing the death benefit comprises of the accumulated fund against the policy.

The beneficiary of the policy can choose 3 options to avail the death benefit. They can either withdraw 1/3^rd of the maturity amount, can utilize the amount to purchase an annuity or can choose the combination of both.

Choice of Investments

ULIP pension schemes have different investment objectives and risk appetites. Some prefer investing in ULIP plans which provide a higher return on investment with a short- period of time exposing to higher market risk. According to one’s own choice and requirement, insurance buyers can choose to invest in low risk or high-risk investment options. The type of pension scheme chosen by an individual determines the return they can avail.

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Best Pension Scheme in India 2019

SBI Life Annuity Plus

SBI Life Annuity Plus provides comprehensive annuity coverage with a single payout option. Under this Best SBI Pension Plan, the insured is rest assured to gain regular pension/ annuity for the rest of the life. Let’s take a look at some of the features of SBI Life Annuity plus Scheme.

• The plan offers flexibility by offering comprehensive options for the annuity.
• The plan secures the future of the individual after retirement by providing them a steady flow of pension and regular income.
• The annuity payouts offered by the policy can be advanced provided to specific terms and conditions.
• Under section 80CCC and Section 10(10A) of the IT Act, the premium amount paid and claim made are tax exempted.

Eligibility Criteria of the Policy: 

	Minimum	Maximum
Entry Age	40 years	80 years
Frequency of Annuity Pay-out	Monthly, quarterly, half-yearly and annually.
Premium	Depends on the amount of annuity chosen and the age of entry.
Annuity Payout	Yearly- 2400, Half-yearly- 1200 Quarterly- 600, Monthly-200	No limit

ICICI Pru Immediate Annuity

Under this plan option, the insured can choose to make a one-time payment or can choose the option of 5 annuity payout. As the name suggests, the plan offers immediate annuity to the policyholder after retirement. Let’s take a look at the features of the policy.

• The plan offers single premium payment option and the annuity is paid immediately after the premium of the policy is paid.
• The 5 different annuity options offered by the policy are:

1. Life Annuity
2. Joint life survivor
3. Life annuity with return of premium
4. Life annuity guaranteed 5/10 or 15 years and subsequently payable for life.
5. Joint life last survivor with the return of purchase price.

• The policy offers tax benefit under section 80CCC and 10(10D) of Income Tax Act 1961.
• According to the annuity payout option chosen by the insured, the annuity is paid out immediately after the premium is paid.

Eligibility Criteria of the Policy:

	Minimum	Maximum
Entry Age	45 years	100 years
Purchase Price	10,000                                                                       No limit
Annuity payout frequency	Monthly, quarterly, half-yearly and annually.

HDFC Life New Immediate Annuity Plan

This is a traditional non-linked annuity plan that is specifically designed to provide regular income to the individual after retirement. This is one of the best HDFC pension plans which offer different options of annuity to choose from. With the help of HDFC Life New Immediate Annuity Plan, the insured can accumulate a fund for the future and can live their retirement life in a stress-free way. Let’s take a look at the features of the policy.

• The insured can choose for a single life or joint life plan option.
• The plan offers 11 different annuity options to choose from.
• Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.

	Minimum	Maximum
Entry Age	30 years	85 years
Frequency of Annuity Pay-out	Monthly, quarterly, half-yearly and annually.
Premium	Depends on the amount of annuity chosen and the age of entry.
Annuity Payout	10,000	No limit

Reliance Immediate Annuity Plan

This plan is specifically designed to provide an immediate annuity to the policyholder after retirement. The plan helps to create a financial cushion for the future so that the insured can maintain a good lifestyle after retirement. Let’s take a look at the features of the policy.

• The plan offers 3 different options of an annuity payout.
• As it is an immediate annuity plan, the pension is paid out immediately once the insured pays all the premium of the policy.
• The policyholder can avail tax benefit U/S 80C of IT Act 1961.
• Under this plan option, the insured can leave funds for the dependents (parent, spouse, and children).

	Minimum	Maximum
Entry Age	20 years	80 years
Frequency of Annuity Pay-out	Monthly, quarterly, half-yearly and annually.
Premium	10,000                                                                                  No limit		No limit
Annuity Payout	1000	No limit

BSLI Immediate Annuity Plan

This is a single premium non-participating traditional annuity plan which offers regular income to the policyholder after retirement.  This plan option provides an opportunity to the insured to accumulate wealth for the future so that they can deal with the emergencies of life after retirement. Some of the salient features of the policy are:

• The plan offers 5 different options of an annuity payout.
• As it is an immediate annuity plan, the pension is paid out immediately once the insured pays all the premium of the policy.
• The policyholder can avail tax benefit U/S 80C of IT Act 1961.
• The annuity payout is paid as per the annuity options are chosen by the insured.

	Minimum	Maximum
Entry Age	30 years	90 years
Frequency of Annuity Pay-out	Monthly, quarterly, half-yearly and annually.
Premium	Depends on the amount of annuity chosen and the age of entry.
Annuity Payout	12000	No limit

Features of Pension Scheme in India

Vesting Ag

Vesting age of a policy refers to the age of the policyholder at which they receive the pension/annuity. Most of the policies offer a minimum vesting age ranging from 40-50 years, whereas the maximum vesting age ranges up to a maximum of 70 years. However, certain insurance companies extend their vesting age up to 90 years.

Payment Period

The payment period of the policy differs from the accumulation period. Payment period of a pension plan refers to the time period in which the insured receives the annuity after retirement. For example, if an insured receives the pension from 60-75 years of age then the tenure of the pension payment will be 15 years. Even though most of the pension scheme offers separate payment period, there are some pension schemes which offers full/ partial withdrawals at the time of accumulation period as well.  

Surrender value

The surrender value of a policy is determined as the amount the insurer will pay to the insured in case the policyholder decides to surrender the policy before the completion of the maturity period, provided, they have paid the policy premium for the required minimum tenure. Although, surrendering the policy before the completion of the maturity period is not advised to the policyholder as they will lose all the benefits of the plan including the life coverage and sum assured amount.

Accumulation Duration

Accumulation period of the policy is the duration in which the insurance holder pays premium regularly. The premium paid by the insured is accumulated in order to create a corpus for the future and secure the future of the insured financially.  For instance: if the insured starts investing in a pension scheme at a young age of 25 years and continue to invest till the age of 60. Thus, the accumulation period of the policy will be 35 years and the pension for the chosen tenure will come from this corpus.

Documents Required to Purchase Pension Scheme in India

Let’s take a look at the list of all documents that should be kept handy while purchasing pension scheme in India:

Document for Age proof - Any of the following documents can be presented as an age proof

• School or High School mark sheet
• Voter ID
• Birth Certificate
• Passport
• Driving License

Document for Identity proof - Any of the following documents can be presented as a  prove Indian National Citizenship

• Passport
• Driving License
• PAN Card
• Voter ID
• Aadhar Card

Document for Address proof - here is the list of documents that can be used as a proof of permanent residential address.

• Telephone Bill
• Electricity Bill
• Driving License
• Ration Card
• Aadhar Card
• Passport

Documents for Income Proof - Income proof documents specifying the income of the insured.

• Bank Statement slip
• Salary Slip
• IT return file

Submit a Proposal Form - in order to apply for a pension scheme, it is mandatory for an insurance buyer to submit the duly filled proposal form.

Medical Reports - Some life insurance providers can ask for a medical examination before the acceptance of the proposal for a pension scheme. However, medical reports are not required for all the pension schemes.

Frequently Asked Questions about Pension Scheme

Q1. What Should be kept in Mind Prior to Purchasing a Pension/Retirement Plan?

Ans- Firstly, the insurance buyer should decide the amount they want to save and age of retirement. Secondly, they should compare various pension schemes in terms of the annuity, vesting age, surrender value, death benefit, premiums, non-participating and participating maturity benefit. Moreover, in order to choose the best pension scheme in India, the individual can take the help of financial advisors and experts.

Q2. Which Pension Plan is the Better Option of Investment- Traditional or ULIP Plan?

Ans- If an individual wants to do retirement planning in India at a young age, suppose more than 10 years, then they should consider investing in ULIP based pension plan. As under ULIP plans, the premium invested by the policyholder is invested in market instruments like equity and debt providing high returns of investment. However, it is important to know the charges levied on ULIP pension plan. In order to choose the best pension scheme, the insured can make a comparison between a traditional pension plan and ULIP plan and then zero in on a plan.

Q3. Can I Make Early Withdrawals from My Pension Plan?

Ans- Yes, one can make early withdrawals from the pension scheme. However, there are some government restrictions and regulation which is applicable in early withdrawals.

Q4. Can I Apply for Pension Scheme Online?

Ans- Yes, one can purchase the pension scheme online in a hassle-free and easy process. Nowadays, with a wide range of pension schemes available in the market, insurance seekers can compare various plans online and choose to purchase the plan online by simply visiting the website of the insurance company.

Q5. What are the Tax Benefits offered by the Pension Scheme in India?

Ans- Under pension scheme, the policyholders are eligible to avail tax benefit on the premium paid under section 80CCC of IT Act 1961. Moreover, the claim made towards the policy is also eligible for tax exemption under section 10(10D) of the IT Act.

Q6. Can I Pay the Premium of the Pension Scheme Online?

Ans- Yes, the insured can pay the premium of the policy online. Most of the insurance company offers a secure payment system where the insured can make an online payment in an easy and hassle-free way.

Q7. What is Vesting Age in a Pension Scheme?

Ans- Vesting age of a plan refers to the policyholder’s age at which they receive the monthly pension/annuity. Most of the pension schemes offer a minimum vesting age ranging from 40-50 years, up to a maximum of 70 years. However, there are some insurance companies which offer the vesting age up to maximum 90 years.

Q8. What is the Accumulation Period in a Pension Scheme?

Ans- Accumulation period in a pension scheme is the time period during which the insured pays the regular premium of the policy. The premium paid by the policyholder is accumulated in order to create wealth for future and to financially secure the future of the insured. For example: if the policyholder starts investing in a pension plan at a young age of 25 years and continue to invest till the age of 60. Thus, the period of accumulation of the policy will be 35 years and the pension for the chosen tenure will come from this accumulated fund.

Q9. What is the National Pension Scheme (NPS)?

Ans- The government of India specifically introduced National Pension Scheme in order to help the individuals to accumulate wealth for the future so that their life after retirement can be secured. Under NPS, the investment amount of an individual is invested in money market instruments life debt and equity as per one’s own preference. Moreover, under the National Pension Scheme India, 60% of the amount can be withdrawn by the individual at the time of retirement and the rest 40% can be used to buy the annuity.

Q10. What is the Difference Between a Deferred Annuity and Immediate Annuity?

Ans- Under the deferred annuity pension scheme the policyholder can accumulate fund by paying regular premium through the tenure of the policy. After the completion of the policy tenure, the pension is paid to the insured as regular income. Along with the benefit of providing financial security to the insured, the plan also provides the benefit of tax exemption. On contrary to this, under an immediate annuity plan, the pension is paid immediately to the insurance holder. Once the insured deposits the lump-sum amount, the insurance company starts giving the pension immediately based on the amount invested by the insured. Moreover, the premium paid towards the policy is also tax exempted U/S 80C of Income Tax Act 1961.