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10 Things You Should Know About Pension Plans in India

25-August-2021 |

Financial security is a prerequisite for a secure and happy life. Moreover, it will ensure financial independence at different stages in life, especially after retirement. Therefore, people prefer investing in pension plans to safeguard their financial interests even after retirement. With adequate planning considering the current financial obligations and future long term commitments, you can choose the best pension plans in India.

But, before making a decision, you have to know certain facts about pension schemes to make the best use of them for your individual needs. So, without any further ado, let us understand ten important aspects of pension plans!

 

Some Critical Aspects About Pension Plans in India

  1. How does a pension plan work?

    A pension plan starts with the accumulation phase. It refers to the period of time when you purchase the pension scheme until your retirement. The longer is the accumulation, and the better are the benefits. During the accumulation phase, you will have to pay the premium amount regularly. It can either be monthly or annual payments. The premium amount paid by you will be invested in various financial instruments. At the end of the accumulation phase, you will receive a portion of the corpus accumulated, and the rest have to be used to purchase an annuity pension plan for regular income throughout life.

  2. How do I purchase the annuity in my pension plan?

    After the accumulation phase, you have to invest the corpus to purchase the annuity plan. Based on the prevailing interest rates chosen during the plan inception, you will receive a monthly pension income throughout life. However, the extent of corpus accumulated will be based on the period of investment. The longer the investment period, the better are the returns.

  3. When should I start saving in a pension plan?

    When you decide to invest in an annuity pension plan in India, you will have to invest early in life to receive the maximum benefits. If you start investing early, you develop the discipline to save from a very young age. With the increasing family commitments, you may find it difficult or lose interest to invest in a pension plan.

  4. What are safe pension plans in India?

    Some of the prominent pension plans, such as the National Pension Scheme, Senior Citizens Savings Scheme, Employee Pension Scheme, Public Provident Fund etc., are either managed by the post offices or backed by the Government of India.

    The government will utilise the amount invested for pension benefits in varied projects such as infrastructure development like laying of roads, constructing industries etc., Therefore, it is extremely safe and secure for a long term investment.

    When invested with other financial service organisations, still the investment is safe if you invest with reputed financial institutions. Considering the pension purpose of the people behind the plan, the money is not always invested in market-linked securities for increased returns. The larger proportion of funds is invested in safe, low-risk avenues to ensure assured returns.

  5. Do pension plans have variations and diversifications?

    Pension plans have a distinct way of functioning, and there are not many variations, unlike other investment options. As the main purpose of pension plans is to save money for the future and receive a regular income, the plan is restricted to the accumulation and vesting phase without any added benefits.

  6. Should I opt for pension plans from insurance providers?

    As pension plans are distinct, life insurance providers have introduced the life insurance pension plan to enhance the benefits. Insurers provide a life cover along with annuity benefits with these plans. Therefore, in case of your unexpected demise, your nominee will get a lump sum death benefit to compensate for the financial losses to a considerable extent. The plan will also offer pension benefits as part of the life insurance product. Considering the pandemic scenario, a life insurance pension plan is the best pension plan in India in 2021.

  7. What are the tax* benefits associated with a pension plan?

    The premium amount paid towards pension plans in India qualify for a tax* deduction under Section 80C under the Income Tax Act, 1961. If you buy a life insurance pension plan, the portion of maturity benefit that you receive at the end of the accumulation phase as well as the death benefits paid to the nominee is tax-exempt* under Section 10(10D) of the Act. However, the regular pension amount received after the investment period is not tax*-exempt.

  8. Are pension plans flexible?

    Pension plans are not highly flexible. There will be a certain lock-in period until which you cannot make any partial withdrawals. It may not be possible to surrender the plan until it matures too. If you are investing in a pension plan for temporary financial assistance, it is not ideal.

    However, pension plans, such as the Tata AIA pension plans, offer flexibility in choosing the premium payment term, frequency and mode of premium payment, policy period for the life cover and pension benefits etc.

  9. Who should purchase pension plans?

    Pension plans should be a definite financial product in the portfolio of every individual. And, it is of utmost importance to people who are the only earning member in the family and cannot save or invest considering the family commitments at different stages in life.

  10. Do pension plans offer market-linked returns?

    If you have invested early in life and can afford a certain amount of risk in your financial portfolio, you can take up pension plans as part of mutual funds for increased returns. Based on the market movement, there may be slight variations in the progress of the fund. However, the effects will negate in the longer term and offer the best maturity returns.

 
Post-Retirement Rakshakaran with Tata AIA Life Insurance Pension Plans

Tata AIA Life Insurance offers a range of retirement plans, including guaranteed1 returns plans, guaranteed monthly income plans and annuity plans, for optimum, secure and long-term pension planning. You can use our online Pension/Retirement Calculator to determine the retirement corpus and the value of investment required and choose the right life insurance pension plan based on your specific needs.

For more information about our life insurance pension plans, get in touch with an expert today!

 

Conclusion

Pension plans in India guarantee1 a regular income after your retirement. There will be a defined accumulation phase, followed by the annuity phase for the long term maturity benefit. When the plan matures, you will get a certain portion of the corpus accumulated, and the rest will be provided to you as a regular income throughout life. Therefore, it is a safe investment option.

However, there is less diversity and flexibility associated with Pension plans in India. The tax* benefits also remain limited.


But if you are looking for an option that includes a life cover and pension benefits simultaneously, the life insurance product with a pension component from insurers will be a great option for guaranteed1 pension plan in India!

 

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A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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