Pension plans are a good way to secure your finances post-retirement. In India, there are several pensions plans available, and you can choose to invest in the one that you are most comfortable with.
Pension plans provide financial security and stability during old age when people don’t have a regular source of income. Retirement plan ensures that people live with pride and without compromising on their standard of living during advancing years. Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement.
According to United Nations Population Division World’s life expectancy is expected to reach 75 years by 2050 from present level of 65 years. The better health and sanitation conditions in India have increased the life span. As a result number of post-retirement years increases. Thus, rising cost of living, inflation and life expectancy make retirement planning essential part of today’s life. To provide social security to more citizens the Government of India has started the National Pension System.
There are different kinds of pension plans which you can check below:
- Plans that are sponsored by an insurer where the investment is solely in debt and are best suited for conservative investors.
- Plans that are unit-linked and invest in both equity and debt.
- The National Pension Scheme, which invests either 100% in government securities, 100% in debt securities (other than government securities), or a maximum of 75% in equity.
These schemes pay an amount called annuity to the retiree for their lifetime. If the annuitant dies and chooses the option ‘with spouse’, then the spouse receives the pension amount.
In this scheme, the annuitant is paid the annuity for a certain number of years. The annuitant can pick this period, and in case of their death, the beneficiary receives the annuity.
Pension Plans with and without cover
Pension plans with cover include life cover, which means that if the policyholder dies, the family members are paid a lump sum. This amount may not be considerable. The without-cover plan, as the name suggests, does not have life cover. If the policyholder passes away, then the nominee gets the corpus. At present, the immediate annuity plans are without protection, while the deferred plans are with cover.
Guaranteed Period Annuity
Regardless of whether the holder survives the duration, this annuity option is given for periods such as five years, ten, fifteen, and twenty years.
In this type of scheme, the pension begins right away. As soon as you deposit a lump sum amount, your pension starts. This is based on the amount the policyholder invests. You can choose from a range of annuity options. Under the Income Tax Act of 1961, the premiums of the immediate annuity plans are tax exempt. Post the death of the policyholder, it is the nominee who is entitled to the money.
National Pension Scheme
The Government of India introduced a pension scheme in 2004 for those who wanted to build up their pension amount. Your savings will be invested in the debt and equity markets, based on your preference. It allows you to withdraw 60% of the funds at the time of retirement, and the remaining 40% goes towards purchasing an annuity plan.
The government body, Pension Fund Regulatory and Development Authority (PFRDA), has authorised six companies to operate as fund managers. These plans offer comparatively better returns at the time of maturity and remain in force for a substantial amount of time.
With a deferred annuity plan, you can accumulate a corpus through a single premium or regular premiums over the policy term. The pension begins once the policy term gets over. This deferred annuity plan has tax benefits wherein no tax is charged on the money invested until you plan to withdraw it. This scheme can be bought by either making regular contributions or by a one-time payment. This way, it works for you whether you want to invest the entire amount at one time or want to invest systematically.