A Complete Guide to Pension Plan Comparison

8-June-2021 |

The life expectancy of the Indian population is increasing, so have the living standards and associated expenses. This means that ensuring a steady income stream post-retirement is very important. Pension plans provide financial stability and security post-retirement with a monthly income plan. Nowadays, there are pension plans with guaranteed# insurance policies, serving the financial needs of various categories of people.


Pension plans are provided by the government as well as insurers and banks. They usually come with many extra benefits like eligibility and security for taking loans. You can choose one according to your financial goals.


Why do you need pension plans?

In a country where the social security system is non-existent, people need to save and invest in order to manage their retirement. Pension plans allow you to redirect a portion of your income to retirement funds that you can avail of later on.


As we age, we need to save money for future living expenses, especially considering that inflation over time increases expenditure. There is always a chance of facing medical emergencies and expenses as one ages. Thirdly, we may need money to meet family obligations or for important purchases in later years.


Pension plans offer good returns on investment, and some even provide a guaranteed# insurance policy.


Types of Pension Plans

Pension plans in India broadly come under one of these 3 categories:


  1. National Pension Scheme

  2. Pension Funds

  3. Unit-Linked Pension Plans


Pension plans are a form of annuity, where the subscriber is entitled to receive payouts in the future, i.e., after retirement. Based on the type of payout, pension funds can be classified as:


1. Deferred Annuity: Here, the payout begins after some time has passed from the time when the premium payments were made. These allow you to accumulate a significant corpus and also offer tax benefits.


2. Immediate Annuity: In this, the payout begins immediately on depositing a lump sum amount.

Comparing the different plans available and verifying if they offer the kind of annuity you want is necessary to select the best guaranteed# return plans in India.



National Pension Scheme


Also abbreviated as NPS, it is a government-administered pension system meant to encourage everyone, particularly people with low financial savviness, to put funds away for the future.


Eligibility for NPS: Any Indian citizen aged between 18 to 60 can apply to the NPS. The application can be made online or offline through the NPS website or different banks.


How It Works: The NPS has two tiers of plans, the first being mandatory and the second is a voluntary addition. At the end of the scheme, 60% can be withdrawn, and the remaining 40% has to be used to buy an annuity from life insurers, and it becomes a monthly income plan.


There are a few different investment schemes to park funds:


  1. Scheme E: Investor money is invested in index-based stocks. These stocks carry market risk but give higher returns.

  2. Scheme C: The money is invested in state government and PSU bonds and private firm securities. The risk is lower than Scheme G.

  3. Scheme G: The money will be invested primarily in G-securities, and hence the volatility is almost nil.


Based on the subscriber age, the equity-debt mix goes from 50-50 till 35 to 10-90 at 55. Although, subscribers can change this ratio according to their risk appetite.


What do subscribers gain: Firstly, the fund is locked in till retirement, though 25% can be withdrawn before 60. That ensures financial discipline. At 60, 40% of the fund is turned into an annuity that the subscriber can plan and choose.


The tier 2 account can be used to invest in NPS with no exit restrictions and provides a way to earn more returns.


The NPS is eligible for tax* deduction under Sec 80C. Therefore, it helps reduce income tax liability. Over time, the maturity amount is significantly higher than the premiums.


Pension Plans


The options available here are annuity plans and life insurance monthly income plans where the annuity may be immediate or deferred.


Eligibility: The pension provider determines the eligibility. The minimum age may be below 18, and the maximum age can be 55 or 60.


How It Works: The pension funds are invested in a mix of securities per the subscriber’s wish. Typically, conservative investors choose safe securities in debt, while those wanting higher returns choose greater equity.

Plans for life insurance with guaranteed# returns may be linked to high-risk equity instruments like stocks.


What do subscribers gain: Some subscribers can gain a higher maturity amount if the linked securities do well and earn high returns. Many of these plans are tax-saving while also providing a deferred and fixed annuity, a boon for those who want fixed income.


These plans also provide life insurance, and if the subscriber passes away, the payments are made to the beneficiaries.

Unit-Linked Pension Plans


They are very similar to regular pension plans with annuity for monthly income. The difference is that the premiums are invested in riskier securities that may give high returns like equity stocks, corporate bonds, ReITs, etc.


Eligibility: The minimum age may be below 18, and the maximum age can be 55 or 60.


What do subscribers gain: These plans can be risky and invest the entire premium in equities. If the market performs well, so do these plans, and the subscriber gets higher returns. But they can be volatile and may even end up with no benefit amount. They do provide insurance. Hence, death benefits will be available.


These unit-linked pension plans are eligible for tax deduction under Sec 80C up to ₹ 1,50,000 but in combination with other investments. 




It is necessary to invest in a pension plan to ensure that you can live out your retirement with dignity, maintaining the living standard you are accustomed to. It is difficult to recommend one pension plan as the right plan. You must compare pension plans to identify the one that aligns with your vision for the future.


You can consider Tata AIA Life Insurance Guaranteed Monthly Income Plan(110N147V02) for a non-risky retirement plan with good returns. The claim settlement ratio of Tata AIA is 99.06% for financial year 2019-20. The plan helps save taxes*, and one can opt for riders1 to increase the life cover for your family’s needs.



Need help to choose the right plan?


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  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you
  • 1Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch

  • #Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry



  • Past performance is not indicative of future performance.

  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

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