The government of India introduced the National Pension Scheme (NPS) as a financial cushion for retired persons. Some of its features are as follows:
- You have to invest in this scheme until 60 years of age.
- The least sum you must invest is ₹ 1000. There is no upper limit.
- Your money will be invested in debt and equity funds based on your preference.
- The returns depend on the performance of the funds you choose.
- When you retire, you can withdraw 60% of the savings.
- You must use the remaining 40% to buy an annuity a retirement plan offering periodic income.
Public Provident Fund (PPF)
PPF is a long-term investment scheme with a 15 years’ tenure. Thus, the impact of compounding is enormous, especially towards the end of the term.
Every year you can invest a maximum of ₹ 1.5 lakhs in your PPF account. You can pay upfront or through twelve instalments staggered over the financial year. Your PPF investments are eligible for tax deductions* under Section 80C of the Income Tax Act (ITA).
The government sets the interest rate on PPF every financial quarter, based on the profits from government securities. The funds are not market-linked.
Employee Provident Fund (EPF)
EPF is a government savings platform for salaried employees. Both your employer and you have to make equal contributions towards your EPF account. Your share is removed from your salary every month. The Employees’ Provident Fund Organisation (EPFO) sets the interest rate on the investment. On retirement, you receive the total funds contributed by you and your employer along with the accrued interests.
- Be a member of the Employees’ Provident Fund Scheme (EPFS), 1952 – Are a member of the ceased Family Pension Scheme 1971 or employed in Factories engaged in Industries specified in Schedule I of the Employees’ Provident Fund and Miscellaneous Provisions Act 1952 or employed in establishments notified and engaging 20 or more employees with a salary/wage less than Rs. 15,000 per month at the date of appointment.
- Rendered eligible service of 10 years or more where contribution to EPFS has been made.
- Pension to be received by the member on attaining 58 years of age. Provision of withdrawal benefit also exists.
- A member, who is permanently and totally disabled during the employment is also eligible for pension.
- The Family of the member is eligible to receive the pension Pension following the date of death of the member.
Features of the scheme
- A minimum pension of Rs. 1000/- per month to the member/disabled/widow/widower/ parent/nominee pensioners and Rs. 250/- per month for children’s pensioners and Rs. 750/- per month to orphan pensioners.
- Contribution to EPS: An employee contributes 12% of his/her pay towards the EPF account. A matching contribution is also made by the employer. 8.33% of the employee’s pay is remitted by the employer to EPS. The Central Government also contributes at the rate of 1.16 per cent of the pay of the members to the Employees’ Pension Scheme.
Annuity plans with life cover
Such plans provide a life cover along with a regular source of income. If an unfortunate event occurs while the plan is active, your family member receives a lump-sum payout, however there are other options too that do not offer this financial coverage. Annuity plans are of two types:
- Deferred Annuity
It is a contract with an insurance provider helping you build a retirement corpus. You can make a single lump-sum payment or pay regular premiums over a fixed time-frame the policy term. Thus, this scheme helps you invest as per your resources.
When the policy period ends, your pension starts. If your retirement date is far in the future, this plan is suitable for you.
- Immediate annuity
It is a contract between an individual and insurance company, where in the individual pays a lump sum amount and receives guaranteed income for lifetime, starting almost immediately.