What is Pension Plan? Type of Pension Plans in India
What is Pension?
Pension is a fixed amount that is paid at fixed/ regular intervals during the post-retirement age.
What is a Pension Plan?
A pension Plan is an investment plan which is generally offered by life insurance companies and provides a regular pension to the investor after achieving a certain age i.e. post-retirement. This helps the investor to meet his daily household expenses in old age.
Many insurance companies are offering pension plans in India to investors. You can look into some of the below plans:
How can an individual take benefit from pension plans?
Deciding the suitable amount of pension plan to take maximum benefit is very important for any investor. Planning for retirement should start at an early age to get maximum benefits.
Suppose you are 30 years old and the expected retirement age is 60 years. It means that you have a remaining working life of 30 years. Suppose you estimate that you will need Rs. 50,000 every month for your household needs after your retirement.
Therefore, you need to have an accumulated fund of such an amount that provides you a regular income of Rs. 50,000 per month after your retirement at the age of 60 years. You also need to be careful to estimate your household expenses post-retirement as these will certainly increase from present levels due to the inflationary effects.
To build a retirement fund, you shall invest in a suitable pension plan of your choice where you will pay a fixed amount regularly till your retirement. The investment made by you along with returns will help you to get a pension at fixed intervals after retirement.
Even pension plans allow a partial withdrawal of the accumulated funds to meet emergency requirements. In the case of partial withdrawal, you will get a reduced pension in the proportion to the balance of accumulated funds.
How to make the calculation of pension contribution?
To make the estimation of pension contribution to be made, you can take the help of online pension calculator available on the websites of various insurance companies.
Pension Plan Types in India
Investing in a pension plan is necessary for every person whether he is a salaried or a businessman. You should invest in a pension plan not only to get retirement benefits but also to get tax benefits. You should be knowing that the Income Tax Act allows additional deductions for investments made in pension plans. Types of Pension Plans in India are as below:
|
Type of Pension Plan |
Feature |
|
Guaranteed Period Annuity Plan |
Under this, an annuity or fixed payment is made to the investor for a specific term say 5-10 years. One such example is ICICI Pru Guaranteed Pension Plan |
|
Deferred Annuity Plan |
The investor is required to pay a fixed or lumpsum premium over a certain period and the pay-out starts after certain years after you purchase the plan. These plans are ideal if you are a few years away from your retirement. Pension or withdrawal is taxable. |
|
Immediate Annuity Plan |
The investor is required to make a lumpsum payment and the pension starts as soon as you make the investment. Note that the pension received is taxable. The nominee is also allowed to claim a pension or corpus after the death of the policyholder. |
|
Life Annuity Plan |
Pension is paid till the death of the policyholder ‘with spouse’ option- Spouse continues to receive a pension after the death of the policyholder. |
|
With Cover Pension Plan |
These are unique pension plan which comes with life cover- Till death, the policyholder gets a fixed pension and the nominee is entitled to receive life insurance maturity on the death of the policyholder. |
How to choose a pension plan?
Here comes some tips to keep in mind before you buy a pension plan:
- Estimate your future expenses post-retirement
- Consider your current income and calculate a fixed amount to be invested to attain future plans
- Study various pension plans available in the market and understand the riders and benefits.
- Buy pension products either online or through your insurance agent
