Pension Plans
Planning for the old age when the ability to earn diminishes while the expenses to live a dignified and healthy life start rising is of utmost importance.
A lot of companies and consultants offer a host of financial products so that you save enough money for the golden years of your life.
However, the rising costs ensure that no amounts of savings are enough to meet the daily expenses.
Also, savings are depleted fast in case of an emergency. This is where you need to factor in the pension plans.
- ☂ Pension plan is an investment tool that helps you to save money for your post-retirement life.
- ☂ After the term of the plan is over, the insurance company pays you monthly income for a pre-decided period of time to meet your financial requirements apart from paying a substantial amount as lump sum.
- ☂ This ensures you have a steady income flow even during your old age and you will never be dependent on others for your monetary needs.
Investing in a pension plan is to give yourself a gift in the old age: a gift in the form of money that will help you to meet routine expenses as well as manage any medical emergencies with your head held high!
Eligibility to Buy Pension Plans!
Any resident or non-resident Indian between the ages of 18 to 55 years can buy a pension plan.
The documents that you need to produce while buying are:
- ☂ Photo Identity Proof
- ☂ Address Proof
- ☂ Crossed Cheque of First Premium Payment or Online Transfer Availability
- ☂ PAN Card
- ☂ Date of Birth Proof
Benefits of Pension Plan!
Pension plans are an absolute gift when it comes to financial independence post retirement. A carefully studied and selected pension plan can help you enjoy your old age without worrying over money matters.
Income Guarantee After Retirement
These plans offer you guaranteed income post retirement, when your salary is not available to you. You can avail this income either monthly/quarterly/half-yearly or annually depending on your requirements. Whether you buy deferred annuity plans or immediate annuity plans, the income is secure and guaranteed.
Investment Returns With Fixed Amount Guarantee
As per the guidelines issued by Insurance Regulatory and Development Authority of India (IRDAI), the insurers are mandated to offer positive no-zero returns. Complying with the orders, the insurance companies now offer a minimum of 1% returns on investment. This way you’re assured of returns and your investment will not lead to any losses.
Takes Care of Your Family With Death Benefits
Not only a pension plan pays you regular income when you’re alive, it also ensures that your nominee receives death benefits in case you pass away. These benefits can also include any bonuses, if applicable. Your family can use the lump sum death benefit pay-out for many major expenses.
Choice of Investment In Different Pension Plans
Every buyer or investor comes with a different preference and limitation to invest. Some may prefer aggressive portfolios offering various benefits, while others may just want moderate or conservative ones, helping the basic needs. A host of retirement or pension plans offer the options of choosing the underlying funds. Depending on the options you chose, the returns and pay-out amounts will vary.
Tax Benefits On Pension
The Section 80CCC of the Income Tax Act offers you a tax deduction towards premium for pension plans. The deduction allowed is up to a maximum amount of Rs. 1.5 lakhs in a financial year.
Types of Pension Plans
Each individual has different needs pre and post retirement. Therefore, the pension plans come in various forms too, with different features, which can take care of your individual needs. Usually, pension plans differ on the basis of annuity (regular or lump sum returns) that they offer to the policyholder.
Here are the types of pension plans you can choose from, depending as per your financial planning before and after your retirement.
Choosing this plan, makes the policyholder entitled to annuity until his/her death, and entitles the spouse to receive the annuity after the policyholder dies. This is a very important plan if you wish to secure the financial future of your spouse, especially in old age.
These pension plans come with a life cover component. This works as a term insurance plan, where a lump sum assured against life cover is paid to the family members, if the policyholder dies during the term of the plan. Do not take this lump sum amount as substantial, because, usually the major part of premium for such plans goes towards building the corpus of pension funds. Hence, the life cover component brings a nominal amount as returns. As per current trends, Deferred Annuity Plans come with life cover. This is a good plan to invest, and save money on term insurance.
Here the return (annuity) is paid to the policyholder for a certain number of years. It is up to the policy holder to choose that period of payments. If, in any case, the policyholder dies within those years, then the annuity is paid to the beneficiary nominated by the policyholder. One can nominate children or grandchildren to receive the benefits.
In this type of plan, your returns start immediately as soon as you make the investment. A lump sum premium is required to be paid to the insurance provider and as per that premium; a set amount is available to the policyholder. In case the policy holder dies, his/her nominee shall receive the payable amount over the stipulated duration. The premiums paid for the immediate annuity plans are tax exempted, under Income Tax Act, 1961. These plans are suitable if you have a portion of spare money to be invested suitably.
There is no life cover component with such plans. The nominee of the policyholder receives the corpus accumulated over a period of time, till the death of policyholder. As per current trends, insurance providers offer Immediate Annuity Plans without life cover. You can buy this plan if you already have a separate life insurance policy.
As the name suggests, the returns are not immediate, they are deferred for a later period, which is called pay-out or payment period. The policyholder is allowed to accumulate a corpus over a term by paying regular premiums or a single lump sum premium. This period of paying premiums is called accumulation period. Once the accumulation term is over, the returns in form of pension are received by the policyholder. The premiums paid (regular or one time) are exempted of tax. Deferred Annuity Plans are suitable for both kind of investors, the one who want to invest systematically and periodically, and the ones who have an amount to be invested in one single go.
Under this plan, the policyholder receives the returns for a set number of years such as 5, 10, 15 or 20. These limits are set by the insurance provider and one of them is chosen by the policyholder. It is irrespective whether the policyholder remains alive for the chosen years, the annuity is offered for those years only.
This is a pure government initiative to facilitate the citizens of the country who wish to build pension funds. Under this pension scheme, one can invest the savings in equity or debt based instruments, as per the preference. Out of the entire maturity amount, one can withdraw 60% to take care of regular needs, while the remaining 40% must go into the annuity. The receivable maturity amount under NPS is not tax free.
