A pension plan is an investment plan that is well-designed to fulfil all your day-to-day needs after you retire. One can also save by investing money either through regular payments or a lump sum over a period of time. These pension plans provide an assurance of a stable income during retirement years, ensuring financial security.
If you are looking for insurance coverage along with high investment growth through market-linked returns, ULIP is a good choice. By planning well in advance, one can be ready financially to meet all the day-to-day expenses once you are retired.
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Different Types of Pension Plans in India
To select the Best Pension Plan in India, let us first learn about the different types of pension plans.
- Deferred Annuity
They come in 3 different variants, i.e., fixed, variable, and indexed. It allows the corpus to be accumulated through regular or single premium payments. Here, the amount invested throughout the policy tenure gets locked and can be withdrawn only after the completion of the policy tenure. 1/3rd of the corpus amount is exempt from the tax when the amount is withdrawn, while the remaining 2/3rd is taxable.
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- Immediate Annuity
This plan provides an immediate source of income after a lump sum payment has been made. The premium amount is exempt from tax as per the Income Tax Act of 1961. The nominee gets the amount in the event of the unfortunate demise during the policy term.
- Annuity Certain
This plan promises payments to the annuitant for some specific number of years, irrespective of how long they survive. Here, this predetermined period is referred to as a “certain period” or “guarantee period”.
- Guaranteed Period Annuity
It provides an annuity for a specific number of years as you opted, like 5 years, 10 years, 15 years, or 20 years. Irrespective of whether the unfortunate demise of the policyholder occurs or he survives, you will get the annuity.
- Life Annuity
It provides a regular pension payment during the lifetime of the policyholder. Under the “Life Annuity Plan”, the pension amount will be transferred to the spouse in the event of the unfortunate demise of the policyholder, and the option “with the spouse” is chosen.
- National Pension Scheme
This plan was introduced by India to secure the financial future of government and private employees post-retirement. The policyholder is required to invest the money in debt and equity funds to get a return on investment. The amount equivalent to 60% can be withdrawn at the time of retirement, and the remaining 40% can be used to buy an annuity. The proceeds from NPS are not tax-free.
- Pension Funds
It is a long-term pension plan regulated by the government under the Pension Fund Regulatory and Development Authority (PFRDA). In comparison to other savings plans, this plan offers better returns at the time of maturity. It remains active for some limited period, and in case of any emergencies, the amount can be withdrawn from the pension fund during the contribution stage, hence providing financial stability. Also, one can use the pension calculator to determine the potential returns from this investment option.
- Whole Life ULIPs
In this plan, the amount is invested in the market-linked funds for the entire life, providing tax-free income. Here, only partial withdrawals are allowed at the time of retirement.
- Defined Benefits
This plan provides a guarantee of specific income for life, where calculations are based on earnings and number of years of service with the employer.
- Defined Contributions
In this plan, the retirement income is not guaranteed, but the contributions are guaranteed. Both parties can contribute to the plan, and the amount will depend on the contributions and investment returns.
- HDFC Life Insurance Pension Plans
HDFC offers many different retirement plans that can be customised to meet requirements and that can be availed at an affordable cost to ensure financial security.
Eligibility Criteria
Provided below are the eligibility parameters that are to be met to purchase a retirement plan:
- The minimum age to buy a retirement plan is 18 years, and in some cases, it is 30 years.
- The maximum age to buy a retirement plan is 70 years.
- One should pay the premium amount towards the retirement plan, as the pension amount depends upon the premium paid.
- The age at which one starts getting a pension is known as the vesting age, which is, in most cases, 40 years, which may vary depending on the insurance provider.
How to Buy a Retirement or a Pension Plan?
Follow these mentioned steps to buy a retirement or a pension plan:
Step 1: Look out for the financial goals that are to be achieved.
Step 2: Open the insurance company’s website and look for retirement plans.
Step 3: Evaluate the salient features of a pension plan that are offered by different plans.
Step 4: Also calculate the premium amount that will be charged to the plan selected as per your needs.
Step 5: Select the pension plan that best aligns with your objectives and needs.
Step 6: One can modify the plan as per the situation if some additional features are to be added or coverage is to be adjusted.
Step 7: Pay online and get confirmation about the retirement plans.
Benefits of Pension Plan
Provided below are the benefits of the pension plan:
- Annuity
It is a fixed amount that will be received every year throughout the life when an Annuity Plan is purchased, where the annuity can be immediate or deferred, depending on the nature.
- Sum Assured
It is the definite amount provided to the nominee of the chosen plan at the end of the policy tenure. In normal cases, it is 10X of the policy’s annual premium.
- Vesting Age
It is the age when the pension gets started to be paid from the retirement plan.
Conclusion
Pension plans are quite important to secure financial stability post-retirement. Planning for retirement helps prepare finances for the post-retirement time period. It basically involves goal setting, estimation of income requirements, accumulating and funding support for those requirements throughout the retirement years.