Pension plans, also known as retirement plans, are a crucial aspect of retirement planning. They offer the dual benefits of investment as well as insurance post-retirement. In this, you put a portion of your income into the assigned plan. The objective is to benefit from a monthly income plan that generates sufficient cash flow to cover your daily needs. 

 

These plans have attracted great interest over the years, considering the inflation and the limited number of social security initiatives in our country. They also guarantee¹ insurance to ensure that one leads a carefree life after retirement.

 

What exactly is a Pension Plan?

 

Pension plans are retirement plans that offer multiple benefits. Pension plans require investments to be made over a long time period. This allows the policyholder to accumulate money in a systematic manner. After retirement, the accumulated amount is repaid to the insured either as a lump sum or at regular intervals. Depending on the type of plan, one might even get an optimal return from the pension plan investment. Even if one has several investment plans, a pension plan is nevertheless crucial. 

 

What are the different types of pension plans?
 

Now that the meaning of pension plans is clear, let's discuss the different types of monthly income insurance plans in India that one can choose from:

 

• Pension plans with and without life cover: 
  
  Pension plans with life cover provide life insurance coverage. Upon the death of the policyholder, the nominee gets the lump sum amount of the policy. One downside of the plan is that the cover is not very extensive as a large chunk of the premium is directed towards building a corpus rather than offering for life cover.
  
  No life cover is offered to the insured under a ‘without cover plan’. In case of the person’s death, the beneficiary gets the corpus (till the date of the death).
  
  The National Pension Scheme is a good example of a pension plan without life cover. The funds invested in the NPS are invested in an equity-debt portfolio. After the age of 60, the policyholder can start withdrawing from the pension account.
  
  
• Immediate and deferred annuities:
  
  The pension is provided immediately under an immediate annuity scheme. Here the policyholder has to pay a lump sum amount, and the pension will be paid instantly based on this amount. The insured can choose from a range of options under the immediate annuity pension scheme. On the bright side, the premiums paid are also tax^*-exempted as per the Income Tax Act, 1961. The nominee of such a policy is entitled to receive the money in case of the demise of the insured person during the term of the policy.
  
  Under a deferred pension scheme, a corpus accumulates through regular premium or single premium payment over a policy term. The insured receives the pension after the completion of the tenure. This scheme provides various benefits to the policyholder. In the case of a deferred pension scheme, only one-third of the corpus is tax^*-free upon withdrawal, whereas the rest two-third is taxable. The amount invested in a deferred plan is locked and cannot be withdrawn irrespective of any emergency.
  
  
• Traditional plans and unit-linked pension plans
  
  In a traditional retirement plan, the policyholder’s money is primarily invested in government securities. This is regarded as a safe investment avenue as the risk associated with it is less.
  
  In a unit-linked pension plan, the money of the insured is invested in a combination of stocks, bonds, and securities.
  
  
  

 

When to start investing in a retirement plan?
 

People usually start planning for their retirement when they are in their forties. But it is always advisable to start as early as possible. Purchasing a monthly income plan at an early stage enables one to secure the payout with affordable premiums to avoid any financial stress. Only then it becomes easier to sustain oneself by the time of retirement.

 

 

How can financial planning help with retirement corpus targets?
 

With several companies offering different monthly income insurance plans in India and the government rolling out new pension schemes every few years, the benefits provided by the pension schemes can be enhanced with sound financial planning.
 

• Emergency funds - Account for all the monthly expenses and keep aside an amount for emergency needs while calculating the financial corpus necessary to sustain and meet unexpected emergencies post-retirement.
  
  
• The final corpus should be inclusive of inflation - One must keep in mind the growing inflation while calculating the corpus needed to maintain a comfortable lifestyle in old age.
  
  
• Debt Management - Assess all the outstanding loans and current assets. Try to repay the loans (if any) on time, lest they take away a sizeable chunk of the annual income.

 

How to choose the best pension plan?
 

• Calculate all financial requirements for the later part of life while factoring in inflation.
• Once the desired amount is established, decide on the amount that needs to be saved regularly.
• Based on the profile and needs, one can choose the plan that covers all the expenses.
• A good pension scheme offers both life insurance plus savings. Check and compare the features of different plans.
• A pension calculator can help with the comparison and in deciding the payout of the chosen plan.

 

Monthly Income Plans from Tata AIA Life Insurance
 

Tata AIA Life Insurance offers monthly income plans that provide multiple benefits to the policyholder. The term plan ensures the security of the policyholder and the loved ones. The option to choose amongst various riders² to enhance the coverage is also available. The flexibility of the plans with guaranteed¹ returns will help to achieve the financial goals.

 

 

Conclusion
 

Buying a pension plan helps one create a financial cushion in the long term to ensure well-being in the golden years. By choosing the right pension plan, one can maintain a comfortable lifestyle in the later years.

 

L&C/Advt/2023/Mar/0894