Retirement is a phase to set yourself free! Free from stress, financial constraints, and family commitments! Well, you cannot stay completely away from your family financial obligations. All you can do is, plan for an independent and sophisticated retirement life for your well being and the benefit of your family. And, that is the sole objective of pension plans in India! Therefore, you must educate yourself on pension plans to retire early, enjoy your retirement phase and lead a peaceful life! So, here is a beginner's guide to pension plans in India.

 

What is a Pension Plan?

A pension plan is a retirement solution to help you accumulate a corpus for managing routine expenses and other family financial commitments after retirement. It can be customised to receive a regular income for a fixed period or until death. There are different types of pension plans that offer a range of benefits, including pension plans with life cover. So, let us get into the details.

 

Features of a Pension Plan

Before investing in a pension plan, you must understand how it works for better utilisation.

 

1. Accumulation phase - A pension plan will start with the accumulation phase. You will have to pay a premium regularly to accumulate the retirement corpus over the policy term. The longer the accumulation phase, the better the retirement corpus. Therefore, you can choose a longer policy term when you start investing early.
   
   
2. Annuity phase - You can purchase the annuity using the retirement corpus earned at the end of the accumulation phase. The annuity plan will provide a regular income for the fixed period. Therefore, you pay for the annuity, and the annuity plan will pay for your financial needs until desired.

 

Types of Pension Plans

 

There are different types of pension plans available in India. It is provided by life insurance providers, employers and the government. Let us discuss some of the most preferred pension plans.

 

1. Immediate annuity plan - When purchased, the annuity plan starts providing the regular income immediately. It is an ideal pension plan for senior citizens who have just retired.
2. Deferred annuity plan - When purchased, the annuity plan starts providing the regular income starting from a deferred date.
3. Annuity certain - The annuity plan provides the regular income to the annuitant for the fixed period. And, on his unexpected death, the plan will pay the annuity to the beneficiary.
4. Life annuity - The annuity plan ascertains the annuity payment until your death. You can also choose this option to extend it until the death of your spouse in your absence.
5. Life insurance pension plans - Insurance providers offer annuity-based pension plans that offer a range of benefits. Furthermore, with the rider^# options, you can enhance the protection, for example, help your nominees receive an additional fund in case of your unexpected accidental death or waive future premium payments in case of total and permanent disability. And, the flexible premium payment options allow you to customise the plan based on your income and financial requirements. You can use the pension plan calculator to estimate the premium precisely.
6. National Pension Scheme - It is a pension scheme provided by the government to encourage individuals to save money regularly for a long period. The accumulated fund will be invested in the debt and equity market. On maturity, 60% of the corpus will be available for withdrawal, while the remaining will be invested in an annuity plan.
7. Pension funds - Retirement savings solutions assisted by the government. It is secure and regulated by the Pension Fund Regulatory and Development Authority.

 

Why is Pension Plan Required?

Pension plans are required considering changing lifestyle conditions and global scenarios.

1. Life expectancy - We have resorted to a routine that makes us healthy to stay longer. It will certainly increase life expectancy, necessitating a regular income and the annuity pension plan.
   
   
2. Inflation - With an increase in the inflation rate, you should be prepared to afford an everyday life after retirement. The annuity plan will provide a regular flow of income.
   
   
3. Increasing health complications - As you grow older, you have to allocate specific funds to manage the health complications and related expenses.

 

Benefits of a Pension Plan

Pension plans offer benefits to maximise your returns.

1. Tax* Benefit - According to the Income Tax Act, 1961, your investment in pension plans qualify for a tax* deduction and exemption benefits. Investments up to ₹1,50,000 are eligible for deduction under Section 80C and especially Section 80CCC for annuity pension plans offered by life insurance companies. And an additional deduction of ₹50,000 on investments made in the NPS. Therefore, you can avail of ₹2,00,000 in total on the investments made in pension plans.

 

Conclusion

Pension plans provide a regular source of income. It helps you accumulate a corpus and invest in an annuity plan to receive a regular income until desired. In addition, annuity pension plans from life insurance providers offer a life cover to safeguard your family's financial future. Moreover, flexible features help you modify the pension plan for maximum protection and financial benefits while saving a lot on tax*!

 

L&C/Advt/2022/Nov/2936