A pension plan is an investment plan that is well-designed to fulfil all your day-to-day needs after you retire. One can also save by investing money either through regular payments or a lump sum over a period of time. These pension plans provide an assurance of a stable income during retirement years, ensuring financial security.
To assist you through this process, a Pension Calculator helps you determine the amount of funds that need to be invested per month for retirement purposes. You are required to enter the present age, expected retirement corpus, retirement age, & present savings. Hence, the retirement calculator helps determine how much funds an individual will require to lead a comfortable life post-retirement.
Benefits of Pension Plans
Provided below are the benefits of Pension Plans:
- Regular Income Post Retirement
Get an assured monthly income post-retirement in exchange for the investments done today, hence providing financial safety.
- Mental Peace
It helps reduce stress, as it helps you prepare for the emergency period, hence providing a sense of independence.
- Insurance Cover
Some of the plans include insurance coverage, which will help protect you against possible financial burdens.
- No-Risk Investment
Get unconditional support from different investments with risks.
- Option to Add Riders
Some additional riders can also be added to increase the value of the plan.
- Financial Security
The death benefits will be paid to the family members in case of the sudden demise of the policyholder, hence providing financial security.
- Tax Benefits
Get some tax benefits & exemptions that can be availed.
Different Types of Pension Plans in India
Provided are the different Pension Plans available in India:
1. Deferred Annuity
There are 3 types of Deferred Annuity plans, namely, fixed, variable, & indexed that allow the corpus to be accumulated through regular or single premium payments. Under this plan, the amount invested throughout the policy tenure gets locked & can be withdrawn once the policy tenure is completed. 1/3rd of the corpus amount is exempt from the tax when the amount is withdrawn, while the remaining 2/3rd is taxable.
2. Annuity Certain
This plan promises payments to the annuitant for a certain number of years, irrespective of how long they survive. Under this plan, the predetermined period is referred to as a “certain period” or “guarantee period”.
3. Immediate Annuity
This plan provides an immediate source of income after a lump sum payment has been made. The premium amount is exempt from tax as per the Income Tax Act of 1961. The nominee gets the amount in the event of unfortunate demise during the policy term.
4. Guaranteed Period Annuity
It provides an annuity for a specific number of years as you opted, like 5 years, 10 years, 15 years, or 20 years. Irrespective of whether the unfortunate demise of the policyholder occurs or he survives, you will get the annuity.
5. Pension Funds
It is a long-term pension plan regulated by the government under the Pension Fund Regulatory & Development Authority (PFRDA). In comparison to other savings plans, this plan offers better returns at the time of maturity. It remains active for some limited period, & in case of any emergencies, the amount can be withdrawn from the pension fund during the contribution stage, hence providing financial stability.
6. Life Annuity
It provides the regular pension payment during the lifetime of the policyholder. Under the “Life Annuity Plan”, the pension amount will be transferred to the spouse in the event of the unfortunate demise of the policyholder, & the option “with the spouse” is chosen.
7. National Pension Scheme
This plan was introduced by India to secure the financial future of government & private employees post-retirement. The policyholder is required to invest the money in debt & equity funds to get a return on investments. The amount equivalent to 60% can be withdrawn at the time of retirement, & the remaining 40% can be used to buy an annuity. The proceeds from NPS are not tax-free.
8. Defined Benefits
This plan provides a guarantee of specific income for life, where calculations are based on earnings & number of years of service with the employer.
9. Defined Contributions
In this plan, the retirement income is not guaranteed, but the contributions are guaranteed. Both parties can contribute to the plan, & the amount will depend on the contributions & investment returns.
10. Whole Life ULIPs
In this plan, the amount is invested in the market-linked funds for the entire life, providing tax-free income. Here, only partial withdrawals are allowed at the time of retirement.
11. HDFC Life Insurance Pension Plans
HDFC offers many different retirement plans that can be customised to meet requirements & that can be availed at an affordable cost to ensure financial security.
Factors to be considered while buying a Pension Plan
Provided are the factors to be considered while buying a retirement plan:
- Monthly Expenses Post-Retirement
Consider your expenses on a monthly basis to ascertain the quantum of funds required that will be fulfilled to cover those expenses.
- Inflation-Beating Returns
Plan your pension funds considering the inflation factor, as the funds that are sufficient today may not be tomorrow due to inflation.
- Cover Medical Emergencies
Pension funds should also take into consideration the age-related medical expenses.
- Assets & Income Sources
Consider your source of income & assets while buying a pension plan, as these assets or income are an additional source of income.
- Research Your Options
Do proper research while buying a pension plan to see whether it suits you & meets all requirements or not.
- Plan Ahead of Retirement
One should start the pension planning well in advance so that to get enough time to accumulate the funds.
- Assess Your Risk Tolerance
Retirement plans offer convention plans & market-linked plans. Hence, one should assess the risk appetite to choose the type of plan.
Conclusion
Pension plans are quite vital to secure financial stability post-retirement. It basically involves goal setting, estimation of income requirements accumulating & funding support for those requirements throughout the retirement years. Planning for retirement helps prepare finances for the post-retirement time period.
