Pension Plan

Pension plans are also popularly known as retirement plans. Under the same you can use a part of your current savings to secure your post-retirement life. Some people think that they have enough savings for their retirement, but it is a fact that savings get exhausted quickly, so with the help of the best pension plan you can safeguard your post-retirement life easily. Appropriate pension plans allow you to enjoy your post-retirement life in a systematic way without any tension. That’s why it is important to have a pension plan that will act as a savior in your golden years.

Other than your private home and your car, retirement investment might be the most important fund you’ll ever create. Although retirement funding looks like a problem, especially if your retirement date is not very far off. As retired life normally forms the one-third part of your life, it is essential to plan for it. Even apparently small investments now can make a large difference in your coming life. So, it is never late to begin planning for your retirement and it is well worth spending some time to do your personal research and finding out the related details.

In different manners, the pension plan is basically a procedure in which a working person or an employee transfers a part of his /her salary or income towards the retirement benefits. A pension plan is basically a tool that offers complete safety at the time of post-retirement. There are several issues that help in understanding the importance of holding a pension plan, such as rising health care cost, the rise in life expectancy rate and social security system among others. A pension plan completely safeguards your post retirement phase easily.

After years and years of hard work, retirement is a phase most of us look forward to in our lives. While retirement is supposed to be the most peaceful phase of our lives, one must also be aware of the fact that one’s regular monthly income comes to a stop during this time. If you have not planned for this during your productive years, you might end up facing various financial difficulties in your life.

This is where an annuity or pension plan comes into play. One of the major benefits of a pension plan is that it provides regular income to the policyholder even after his/her retirement. If you are worried about your monthly expenditure following retirement, you must invest in a pension plan and build a corpus large enough to take care of your requirements.

Pension plans typically come in many forms, and they offer flexible benefits to policyholders depending upon their requirements. Customers can choose between unit-linked retirement plans or endowment plans based on their risk appetite. Most of the insurers in the market have multiple variants of pension plans to reach out to a wide range of customers. Also, customers can choose between single premium pension plans and regular premium pension plans based on their requirements.

By starting the investment early during the productive years of their life, people can build a large corpus with only a small portion of their annual income. Alternatively, they can also pay a lump sum single premium amount and get regular income from the investment. Most pension plans allow customers to choose the age at which the annuity can begin.

Types of Pension Plans in India

To cater to the requirement of the insurance seekers, there is a wide range of Pension Plans available in the market. These plans have multiple classifications, based on the plan structure and benefits. These pension plans can be further divided into 8 categories:

  • Deferred Annuity
  • Immediate Annuity
  • Annuity Certain
  • With Cover and Without Cover Pension Plans
  • Guaranteed Period Annuity
  • Life Annuity
  • National Pension Scheme(NPS)
  • Pension Funds
  • Whole Life ULIPs

Let’s explore these pension funds in detail:

Deferred Annuity

A deferred Pension Scheme allows you to accumulate a corpus through regular premium or single premium payment over a policy term. After the completion of the policy tenure, the pension is provided to the insured. The deferred annuity plan offers various different benefits to the insured person. Moreover, it also offers the benefit of a tax exemption that is associated with the pension scheme. In a deferred pension plan, only 1/3rd of the corpus is tax-free on withdrawal, whereas the 2/3rd of the corpus is taxable. The amount invested in a deferred pension plan is locked and cannot be withdrawn for any emergency.

A deferred pension scheme can be bought by paying one-time payment as well as paying regular premium payments. Therefore, these pension schemes are suitable for all types of investors, be it those who want to invest systematically and those who have a chunk of money to invest at one go.

Immediate Annuity

Under an immediate annuity scheme, the pension is provided immediately. The policyholder has to pay a lump-sum amount and pension will be provided instantly, based on the lump-sum amount paid by the policyholder. Under the immediate annuity pension scheme, the insured can choose from the range of annuity options. Moreover, the premiums paid are tax-exempted as per Income Tax Act, 1961. In an immediate annuity retirement plan, the nominee of the policy is entitled to receive the money in case of demise of the insured person during the tenure of the policy.

With Cover and Without Cover Pension Plans

With cover pension plans have life cover component in the plan. Upon the death of the policyholder, a lump sum amount is paid to the beneficiary of the policy. However, the cover amount is not very high since a large part of the premium is paid towards growing the corpus rather than covering for life risk.

Under without cover pension plan, no life cover is offered to the insured person. In the event of unfortunate death of the insured person, the nominee will get the corpus (till the date of the death). Currently, deferred pension plans come with the option of life cover, whereas immediate annuity plans do not offer the option of life cover.

Annuity Certain

Under this pension plan option, the annuity is paid to the annuitant for a specific number of years. The annuitant can choose the period and if they pass away before receiving all complete payment, the annuity will be paid to the beneficiary of the policy.

Guaranteed Period Annuity

Under guaranteed period annuity plan, the annuity is provided to the policyholder for certain periods like 5 years, 10 years, 15 years or 20 years, whether or not the insured survives that duration.

Life Annuity

Under the life annuity plan, the pension amount will be paid to the annuitant until death. After choosing the option of ‘with spouse’, the amount of pension will be given to the spouse of the policyholder, in case of the death of the policyholder.

National Pension Scheme (NPS)

New Pension Scheme was introduced by the government of India in order to secure the financial future of the individual after retirement. The policyholder can put savings in the New Pension Scheme. As per the preference of an individual, the money invested in the National Pension Scheme is put in equity and debt funds in order to generate returns on investment. The policyholder can withdraw 60% of the amount at retirement and rest 40% of the amount is used to purchase the annuity. The maturity proceeds are not tax-free.

Pension Funds

The pension fund is a type of pension scheme that remains in force for a long period of time. This pension plan offers a comparatively better return upon maturity. The Pension Fund Regulatory and Development Authority (PFRDA), the government body has allowed 6 companies as fund managers to manage Pension Funds.

Whole Life ULIPs

Under this option of the pension plan, the money stays invested for the whole life of the insured and upon retirement, he/she can make partial withdrawals and get tax free income. Additional withdrawals are allowed whenever needed or whenever necessary.

Features and Benefits of Retirement Pension Plans

In today’s day and age, people start planning for the retirement life at an early stage so that at the later stage they do not have to depend on others to make their ends meet.

In case you want to opt for a Pension Plan, ensure that the plan you choose has the following features:


The annuity is the most distinctive feature of a pension plan and generally comes in two types, immediate annuity and deferred annuity. As the name suggests, immediate annuity starts immediately. The insurance company pays the pension plan annuity amount right after receiving the lump sum premium. Immediate annuity pension fund comes with the option of single premium payment so that the insurance company can use the amount invested by the policyholder to build up a corpus for him or her.

The deferred annuity pension plan starts paying a certain sum after a few years. The insurance companies offer a diverse range of plan options for different terms that allow the policyholder to choose the period for which they want to receive the annuity.

If you are looking forward to retirement planning, then, zero in on the best pension plan in India by keeping in mind the annuity offered by the pension scheme and the premium charged by the policy.

Sum Assured

The sum assured is a pre-defined amount offered to the insured during the tenure of the policy. The sum assured amount is generally offered as death or maturity benefit under with cover pension plan. The sum assured amount is determined by the insurance companies in a different way. Under some retirement plans, the sum assured amount is determined as 10 times of the annual premium paid, while others may offer a sum assured that equals the fund value of the policy opted by the individual. In case, there is no sum assured, then the plan is more in the nature of a pure pension plan rather than an insurance plan with retirement benefits.

Vesting Age

Age is the age when the investors begin to receive the monthly pension. For example, most of the pension plans keep their minimum vesting age at 45 or 50 years. The vesting age in a pension scheme is flexible up to the age of 70 years. However, some of the insurance companies allow the vesting age to be up to 90 years of age.

Accumulation Period

The investors can either choose to pay the premium at one go as lump-sum investment or in periodic intervals. The premium invested is simultaneously accumulated over a long-term period in order to create a financial cushion for the future. The accumulation period in a retirement scheme is described as the time from which you start investing until the time you invest. For instance, if you start investing at the age of 30 years and you continue to invest until you turn 60, then the accumulation period of the pension plan will be 30 years. Your pension for the chosen period majorly comes from this corpus.

Payment Period

The payment period, as the name suggests, refers to the period during which the investor starts receiving the payments post-retirement. For instance, if an individual receives a pension from the age of 60 years -75 years, then the payment period of the pension plan will be 15 years. In most of the pension plan, the accumulation phase is kept separate from the payment period. However, some retirement schemes offer the option of partial or full withdrawal during the accumulation period as well.

Surrender Value

The surrender value of pension plans is the amount the insurance company will pay the individual if they surrender the plan before its maturity if they have paid the premium for the minimum period. When an insured surrenders their pension plan, they lose all benefits offered by the plan, including the life cover, if any.

Minimum Guarantee of Pension Plans

Every pension plan must have a minimum guarantee. Every premium paid towards the insurance benefit as well as the maturity benefit must-have ‘on zero returns’, as instructed by the Insurance Regulatory and Development Authority of India. This should not be less than one percent of the premiums paid over the years. Though the minimum guarantee is applicable on all variable insurance plans, most companies offer various types of Pension Plans that may offer better returns than the guaranteed plans. This, of course, varies from plan to plan and you should make sure that you pick ones that offer this best return. The minimum guarantee of pension plans provides a guaranteed amount that the policyholder will definitely receive at the end of the policy period.

Factors to Consider While Buying Pension Plans

Here are different factors that should be considered while purchasing a Pension Plan:

  • Monthly Expenses: While planning for retirement, it is very important to keep in mind the monthly expenses. After retirement, the regular source of income is cut-off. Thus, in order to keep up with the regular monthly expenses of the family, it important to create a financial corpus big enough to take care of all these expenses. Apart from the monthly expenses, it is important to allocate ample fund for the post-retirement unexpected financial emergencies.
  • Inflation: While purchasing a Pension Plan, it important to keep in mind the growing inflation rate and plan accordingly that how much corpus will be sufficient enough to maintain a financially secured lifestyle after retirement.
  • Life Expectancy: There is no way to correctly predict how long an individual will live. Thus, while purchasing the best pension plans your retirement fund should be sufficient enough to support your financial needs during the old age.
  • Medical Expenses: Young people often tend to ignore the future medical expenses. However, when one gets old, they may have to spend a bomb on medical check-ups and treatments. Thus, it is very important that your Pension Plan should provide you with an adequate fund to deal with any type of medical emergencies.
  • Assets and Loans: Another important thing that you should consider while purchasing the best Pension Plans is your outstanding loans and current assets. In case you have any outstanding loans, then repay off these loan(s) on time. If you fail to repay the loan(s) on time then it can take away a chunk of the annuity income.
  • Understand Your Financial Needs: It is crucial that you understand how much you need to sustain yourself and your dependents after your retirement.
  • Do Some Research: Read through the pension plan details in depth to understand what you are signing up for. The pension details in the policies will offer information on the periodicity of your income, how much is guaranteed, how much is dependent on market performance etc.
  • Understand the Different Products: There are various retirement plans available in the market. Shortlist the ones that will fulfill your financial expectations.
  • Know About other Retirement Planning Options: Do not stick to a Retirement Planning solution just because someone says so. One product that suits your friend may not suit you. Look up the provident funds, or pension funds offered by the asset management companies and those offered by the insurance companies to get what you need.

Do not look at Only the Tax Benefits: Consider tax benefit as a secondary benefit instead of a primary benefit. If you opt for a retirement plan, considering only the tax benefits, you might not be able to build up the corpus you need for your retirement. So, do your retirement planning calculations and choose a plan accordingly.

Features of Pension Plans:

Some of the popular features of pension plans are highlighted below:

  • Annuity options – Most pension plans come with a range of annuity options. One can choose an option which best suits their retirement needs.
  • Early payouts – One can opt to receive the payout at an age of their choosing. Certain plans provide regular payouts from the age of 40 years, providing an option for early retirement.
  • Flexible payments – One can choose the frequency at which they receive their pension. Most policies offer the option to choose between annual, monthly, half-yearly, or quarterly payout.
  • High pension – One can choose the amount of pension they wish to receive. Most insurers do not have an upper limit on the sum assured, thereby enabling one to plan their retired life according to their lifestyle.
  • Additional security – One can opt for riders to enhance the protection offered by a basic annuity plan. These riders can be purchased at affordable rates and are ideal for those looking for additional benefits.
  • Rebates/Incentives – Most insurance companies offer rebates/incentives on premiums which exceed a certain limit. This helps in getting more pension at cheaper rates.
  • Financial independence – Retired individuals with a good pension plan need not depend on others to meet their financial requirements.
  • Protection for family – One can choose to enhance a plan by opting for life cover, wherein a death benefit will be paid to the nominee after the policyholder dies. Additionally, they can also choose to cover their spouse under a plan.

Pension Plan Riders:

It is possible to enhance the protection offered by a pension plan by choosing additional riders. Listed below are some of the popular riders which can be availed in the country.

  • Accidental death/disability rider – This rider provides an additional sum assured in the event of policyholder’s death due to an accident. It also provides financial support if the insured individual becomes disabled while the plan is in force.
  • Critical illness rider – This rider provides protection against critical illnesses. The number of illnesses covered by the rider depend on the company offering it. The insured will receive financial aid if he/she is diagnosed with a terminal illness while the policy is active.
  • Term rider – Opting for this rider ensures that the nominee receives a death benefit after the insured passes away. It essentially transforms a normal pension plan into a life insurance plus pension plan.
  • Waiver of premium rider – Under this rider, future premiums are waived if the insured meets with an event which leads to disability, resulting in loss of income. It is also valid if the insured is diagnosed with an illness post which premium payments are waived.

What is Retirement Planning?

Retirement Planning can be described as the process to plan the long-term and short-term financial goals and the ways to accomplish these goals. Retirement Planning involves identifying different income sources, analyzing the financial objectives, estimating the future expenses, opting for savings program and managing risk and assets.

Planning for retirement is rather a life-long process. Even though, one can start their retirement at any age but it works best, when an individual includes this factor into their financial planning from the starting. Planning for retirement from an early stage of life is the best way to ensure a secured, safe and fun retirement.

Let’s take a look at the key take away of retirement planning.

  • Retirement planning can be described as the financial planning of investment, savings and final distribution of money in order to sustain one’s self at the time of retirement.
  • There are various popular investment options, which allow the individuals to accumulate fund with the advantage of tax benefit.
  • While planning for retirement it is important to consider factors like future liabilities, expenses and life expectancy along with asset and income.
  • The early one starts planning for retirement the better fund they can accumulate over a long period of time in order to have a secured life after retirement.

5 Tips for Retirement Planning

Various retirement plans in India ensures a safe and tension-free retirement. They are among the most popular choices for retirement planning. Since there are many different types of pension plans in India, it is important to analyze your financial needs before you decide to choose a retirement plan.

Let’s take a look at the top 5 tips of Retirement Planning:

  • Save for Retirement Now- Many of us rely on personal savings as a retirement planning option. While the salaried individuals will get have pension income after retirement and the self-employed will have savings, opting for a pension plan early on in life always works as a lifesaver.
  • Be Prepared for Future Financial Emergencies- Since most people have only one source of income, having a retirement corpus to fall back on during the golden phase of your life will be quiet comforting. The corpus ought to be adequate enough to take care of your future financial emergencies.
  • Explore various insurance options- In case you have any dependents then life insurance serves as the primary option of income replacement for those who depend on you. In case you don’t have any dependents then you can invest your income in different investment instruments where it can multiply and you can receive a good return on your investment at a particular time period. Moreover, having an insurance policy at an early stage of life is much easy as the premium rates are relatively less and the policies offer higher coverage as compared to the policy you buy in the later stage of life.
  • Diversify your Investments-Retirement Planning doesn’t have to be boring. Since investing only in retirement plans may not be enough to support your financial situation after retirement, you consider putting your money in different investment instruments for long term capital appreciation and return. Moreover, various investment plans also provide a tax advantage to individuals
  • Think about Your Retirement Wants-much before you reach your old age and get retire start saving money according to your retirement needs. For example, as you age the medical expenses automatically increases so secure yourself and your family with proper health insurance so that in case of any critical illness you are covered entirely. Do give a thought on many other factors like which city you want to settle after retirement, a major investment that can take place after retirement etc.

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