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Four Types of Pension Plans Most Suitable for Retirement Planning

Retirement is the golden period of your life. However, to ensure you live your retired life as you want, it is important to undertake sound retirement planning. During retirement, you are not working and have no definite income source. Further, the rising inflation and limited government aid make it challenging to live a financially secure life after you stop working. Hence, to maintain your standard of living and sustain your retirement expenses, you have to create a strong retirement corpus that can provide a steady income during the non-working years of your life.

An effective medium to create a stable retirement income is by investing in pension plans. Pension plans give you a fixed earning during retirement, enabling you to be financially independent in retirement. Retirement pension plans carry low risk and are an ideal medium to get payment for life after retiring. If you begin investing in a pension policy at a younger age, the amount multiple manifolds, owing to the power of compounding. Apart from offering guaranteed1 income in retirement, pension plans also provide significant tax* benefits.

There are different types of pension plans in India. It is important to understand each pension plan in detail and choose a pension policy that best fits your retirement goals.

Different Types of Pension Plans Suitable for Retirement Planning



  1. National Pension Scheme (NPS): Launched in 2004, NPS is a voluntary, government-sponsored, defined savings plan. The programme is managed by the Pension Fund Regulatory Development Authority of India (PFRDA), assuring complete transparency. The primary objective of NPS is to allow people to save funds for their retirement years.

    NPS works like a mutual fund, where you contribute a defined sum at a pre-agreed frequency, and your money if further invested in a diversified portfolio of securities, such as stocks, bonds and alternative assets (including gold, real estate, commodities, currencies, precious metals, etc.).

    Your NPS contributions grow according to the performance of the underlying security investments. The equity exposure in an NPS scheme is limited to 75% of the corpus. This controls the market volatility risk. The equity exposure in your pension policy portfolio is further reduced as you near your retirement age.

    NPS investments up to ₹1.5 Lakh per annum are tax*-deductible under Section 80C of the Income Tax Act, 1961. You can also get an additional tax* deduction of up to ₹50,000 per annum under Section 80CCD.

    When you retire, you can withdraw 60% of your NPS balance and use the remaining 40% to buy an annuity that can generate periodic income during retirement.

  2. Government pension funds by PFRDA: The government regulatory body for pension plans in India, PFRDA (Pension Fund Regulatory and Development Authority), has authorised six companies to operate as fund managers of pension funds.

    Pension funds are like an NPS scheme, where you invest a fixed amount for a specific duration in a fund of your choice. This fund comprises market securities like stocks, bonds, etc. There are different types of pension funds available in the market. You can choose a pension fund that best aligns with your risk tolerance and financial goals.

    You can also withdraw the entire sum or remain invested in the pension plan to receive regular payments - monthly, quarterly, half-yearly or yearly. However, the exact investment rules depend on the pension fund you choose.

  3. Annuities by insurance companies: An annuity is a financial contract between you and the insurance company, where you pay a lump sum or make a series of payments to the insurer, and, in return, the insurance company promises to pay regular disbursements, beginning immediately or at some point in future.

    Typically, there are two types of annuities that you can use as retirement pension plans. In an immediate annuity, you pay a lump sum and start receiving regular income at a defined frequency immediately after purchase.

    In a deferred annuity, you pay a lump sum, but receive payments after some years, once the initial investment has accrued interest. In both annuity pension plans, you can choose to receive regular income for a fixed duration or the entire lifetime.

  4. Pension plans with a life cover: Pension plans with a life cover offer dual benefits of life insurance and pension income. The premiums you pay for a pension plan with a life cover are divided into two parts. One part of the premium is used to provide you with a secure life insurance cover, and the second part of the premiums is invested in a fund of your choice, allowing you to create a retirement corpus.

    In case of your demise during the pension plan tenure, your nominee will receive the death benefit and other accumulated payouts. If you survive the policy term, you can receive the assured maturity amount as either a lump sum or regular monthly income.

Which Pension Plan Should You Buy?

Out of these most popular types of pension plans in India, you can choose one that fits your needs. If you want good returns, you can opt for an NPS or a pension fund. However, if you want a secure and less-risk pension policy that offers guaranteed1 income in retirement, irrespective of the market performance, then consider an annuity plan or a combination of annuity plans and pension plans with a life cover.

We at Tata AIA understand that retirement requires conservation rather than aggression in investing. Hence, we offer you the utmost security of income during the non-working phase of your life through our well-designed  plans.

Our pension policies assure a guaranteed1 regular income in retirement so that you lead a financially independent life always. The pension plan functions like an annuity, where you can pay a lump sum or regular payments and receive payouts immediately or at a time in the future.

Our pension policy offers guaranteed1 additions and bonuses2 and a death benefit to your nominee in case of your untimely demise during the pension plan tenure. By investing in our pension plan, you can get a loan against your policy, improve insurance coverage through riders# and avail of tax* deductions under Section 80C.

Further, you can access the annuity before the pre-agreed date to fulfil any unexpected healthcare expenses.

L&C/Advt/2022/Nov/2886

Peaceful Retirement Awaits: Discover Your Perfect Pension Plan

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Tata AIA Life Insurance

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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Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *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.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
  • #Rider 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
  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.