A pension plan is the retirement amount, which an individual gets from their insurance companies on a regular basis or in the form of a lump sum. There are various types of such plans available in the country offered by various companies. However, increased choices may confuse and person and make it difficult for individuals to choose one which works the best. Through regular investments, it is possible to develop a sizable corpus, which on maturity gives a regular monthly income for taking care of your post employment years. The sum you gain is can be termed as either the annuity or pension.
According to some people, regular life insurance plans are mostly associated with low returns. One way to deal with this and get an increased income source in post retirement years is through ULIP investments. Here besides investments in government securities and bonds there is a portion of investment done in the stock market. This may help in getting higher returns than regular plans. However, when one is doing a long term planning in keeping with the post retirement years it is also necessary to know about the expenses related to ULIP.
You need to pay a fund management charge and this impact your final returns significantly. Another point to consider is equity allocations overall. Whenever any emergencies occur, these plans give you a chance to liquidate ULIP and get funds. Capital guarantee variations introduced recently promise to give back the total amounts paid in premiums along with the maturity benefits.
Deferred Annuity Pension Plans
As the name suggests, deferred annuity means that in keeping with the wishes of the investor the pension payment does not start automatically on maturity but remains deferred for some time. This is ideal for people who keep working even after the conventional retirement age of sixty and plan to do so for some additional years before leaving employment.
Immediate Annuity Pension Plans
Immediate plans are opposite the deferred, where the payment of pension amounts starts as soon as the policy term ends. Money accumulated over the years through sum assured, bonuses, and guaranteed additions. Insurance company invests this for the generation of a regular income for the policyholder in coming times. In such cases, you do not need to pay a regular premium but instead a onetime lump sum. This kind of plan can be further divided in three different types.
- Annuity Certain: In this type of plan, your insurance company keeps paying you monthly incomes for a fixed period.
- Life Annuity: Here the policyholder keeps getting definite sum throughout life. Additionally in case the death of the person occurs than the nominee is going to keep bonus amounts in addition to the amount on maturity.
- Guaranteed Period Pension Plan: Under this type, the policyholder gets pension for a fixed period as mentioned in the plan. If the person dies within that period then the nominee is going to get the pension facility until the term is complete.
- Last survivor/Joint Life Annuity: This kind of pension plan allows the policyholder to keep receiving the pension until their death; and after this, the spouse becomes eligible to keep on receiving the money as long as they survive.
How does the pension plan vary from regular life insurance?
- Difference in maturity payouts: In the regular insurance scene policyholders, get back the full corpus as it stands on maturity. This however does not happen with pension plans where you can withdraw up to only one third of the maturity amounts.
- Difference in tax benefits: Premiums that you pay under insurance plans up to one-lakh rupee amount get tax benefits through Section 80C. However, in the case of pension plans this tax deduction remains under the Section 80CCC and the limit is up to rupees ten thousand.
- Difference in death benefits: Insurance policies give back the sum assured along with any bonuses that are available under the plan. However, this does not happen in case of all kinds of pension plans. A nominee may withdraw the maturity sum and then invest in annuity they choose.
- Maturity payout taxation: Maturity payouts that you get through your insurance plan are completely free of tax liabilities. However, this is not so with pension plans. One-thirds of the total amounts that you withdraw are tax-free and on the rest two-third, which you get as pension there is a minimum taxation present.
- Difference in income stream: Another difference between the two lies in the difference in income stream. Through regular insurance, it is the lump sum on maturity; and for pension plans, it is the regular amounts paid monthly to the policyholder.
The main aim of pension plans is to infuse the post retirement period of an individual with dignity and confidence, not only through building up of a lump sum but also regular monthly payments.
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