Retirement and Pension plans in India

Retirement plans are also known as pension plans. These plans are a good way to secure your financial stability after getting retired. Such plans offer a regular source of income which policyholders can utilize to meet their expenses. So, if you want to buy a pension plan and secure your future, you should be aware of every aspect of such plans before investing your money. 

Types of Pension Plans-

The insurance companies offer a range of pension plans in India, the different types of pension plans are as follows-

Immediate Annuity Plans–Under such plans, the policyholder is required to pay a lump sum amount at one go to receive the pension instantly. The nominee can claim the pension or the corpus after the policyholder died during the tenure of the policy. Moreover, the premium paid is tax-exempted under Income Tax Act, 1961.

Deferred Annuity Plans – This pension scheme allows you to accumulate corpus through regular premiums or single premium over a policy term. You will start receiving the pension, once the policy term is over. There is no tax levied on the money invested in the plan unless you withdraw from the corpus. You can purchase this scheme by doing regular or one-time payment towards it.

Annuity Certain Plans- Under this pension plan, the annuity is paid to the policyholder for a specific number of years. Here, the policyholders are free to choose this period, and in case of their death, the beneficiary will receive the annuity.

Guaranteed Period Annuity Plans – These are the pension plans under which the pension amount is provided to the policyholder for a specific period say 5 years, 10 years, or 15 years, whether the insured individual survives that duration.

Life Annuity Plans – Under this plan, the pension amount will be paid to the policyholder until death. One can also include their spouse under this plan, wherein they will continue to receive the pension after the death of the policyholder. 

With/Without Cover Pension Plans – With cover pension plans has a life cover component attached to it. It offers a death benefit to the nominee in the event of the demise of the policyholder. No cover pension plan means no life cover is offered to the insured. In the event of the death of the policyholder, the nominee will get the corpus.

National Pension Scheme- This scheme has been introduced by the government of India to secure the financial future of the individuals after retirement. Under this scheme, you have the option of withdrawing 60% of the amount at retirement and the rest 40% is used to purchase the annuity. Here, the maturity amount is not tax-free.

Benefits of Pension Plans

Provision of Regular Income After Retirement- One of the biggest advantages of purchasing a pension plan is that it acts as a steady source of income after retirement. Pension schemes allow an individual to meet their living expenses post-retirement by providing a guaranteed income. With various pension plans available in the market, you can choose from one which suits your needs the best.

Funds at Times of Need – Pension plans provide you with the lump sum payments which can help you to meet your major expenses through life such as purchasing a house, financing your child’s education/marriage, etc. Before choosing a policy, make sure you go through its details to know exactly what benefits you will be receiving from it. 

Tax Benefits – The contributions made to a pension plan, under Section 80CCC, are tax-exempt up to a maximum ceiling of Rs 1.5 lakh. The remaining money is distributed as an annuity and is subject to taxation depending on the retiree's tax rate at the time of retirement.

Insurance Protection – Besides providing income post-retirement, pension plans also provide insurance cover. It protects you and your family from any possible financial burdens that may arise in the future.

Why do I need to invest in a pension plan?

The stage of retirement comes in every working individual’s life, which can give rise to apprehensions in terms of income and maintaining one’s lifestyle. After getting retired, an individual’s source of income may no longer be there which may force them to change their lifestyle. In such a situation, a Pension Plan ensures that you continue to receive regular income after your retirement. Besides this, a pension plan will also help you to fund the activities that are on your bucket list, while also allowing you to be financially independent.

Tips to choose the right pension plan

These tips will surely help you in selecting the best and right pension plan-

Returns – The most important part of any investment is the return it provides. Choose a pension plan only after you have a fair idea about the returns it will provide you in the future. Always keep in mind that if returns are guaranteed, the rate of returns will be low. So, try to go with an option which provides high returns.

Liquidity – Most of the pension plans come with a built-in lock-in period, during which you cannot withdraw the invested funds. So, try to look for such plans which offer you a certain degree of flexibility in terms of withdrawal.

Tax Benefits – Before investing your money in pension plans, make sure that you find out the tax implications that the plan will come with to get the maximum advantage.

Tax Exemption of Dividend / Interest – Another factor to consider while looking for pension plans is the tax exemption of the interest or dividend which you are going to receive. 

Minimum & Maximum Investment Amount – Different pension plans have different limits in terms of the minimum and maximum investment which can be made towards the plan. Make sure you check this before investing so that you can plan your budget accordingly.

Additional Benefits – Retirement plans are accompanied by several additional benefits like life cover, tax advantage, etc. Before you select any plan, try to find out the additional benefits which your plan will be offering you.

Eligibility criteria for Pension Plans

  • Minimum and Maximum Entry Age: For most of the pension plans, the minimum age of entry is generally 35 while the maximum entry age is 75.
  • Minimum and Maximum Vesting Age: Vesting age is the age at which the policyholder starts receiving the pension. In most of the cases, the minimum vesting age is 45 years while the maximum vesting age is 80 years.
  • Policy Term: Depending on the chosen pension plan, the policy term generally ranges from 10 years to 30 years.
  • Proof of Age: Birth Certificate/Passport/Driving License/Voter's ID Card/High School Certificate.
  • Proof of Identity: Aadhaar Card/Passport/Driving License/Voter ID Card/PAN Card
  • Proof of Residence/Address: Aadhaar Card/Passport/Driving License/Ration Card/Electricity Bill/Telephone Bill
  • Proof of Income: Bank Statement Slips/Latest Salary Slips/Income Tax Return File
  • Medical Reports: Some insurance providers may also ask for medical reports before you buy a pension plan from them.