Pension Plans

Pension plans are also known as retirement plans are investment plans that allow an individual to set aside some part of their income over their working/earning life to ensure a regular income on retirement. Retirement is an inevitable stage that comes in every person’s life irrespective of them being in employment or in business. While it is not so pronounced in business persons, it is a stage in life which brings feelings of anxiety, especially in terms of finances. With a regular salary no longer being there at the end of each month, having steady income flow to maintain one’s existing lifestyle and meet regular expenses is a
valid concern on every retiree’s mind. This is where Pension Plans become a relevant must have product for all individuals especially those preparing themselves for a financially stable retirement. The fact that these plans come with a life insurance cover make it even more ideal for any individual given that Savings get consumed fast and sometimes emergencies arrive, so selecting the best pension scheme helps in ensuring cash flow for meeting basic daily needs on retirement. Investing in Pension plans regularly allow the insured to build a sizeable corpus for retirement which will make a significant difference in the way one spends these golden years.

Types of Pension Plans

Depending on the benefits, Pension plans can be classified as follows:

Deferred Annuity :
A deferred pension scheme allows the insured to accumulate a corpus through investment of regular premiums or a one time single premium over a policy term. After the policy term is over, the pension will begin to be paid back to the insured.

Immediate Annuity :
In an immediate annuity scheme, the pension begins immediately. In this plan, the insured deposits a lump-sum amount upfront and pension will starts immediately to the policyholder. Moreover, the premiums paid are exempted for tax, as per Income Tax Act, 1961.After the death of a policyholder, his nominee will be entitled to get money.

With Cover and Without Cover Pension Plans :
Currently, deferred pension plans are “with cover” and immediate annuity plans are “without cover”. As the name suggests, the “with cover” pension plans have life cover included as part of the plan and on the death of the policyholder, a lump sum amount is paid to the nominee. These plans have a relatively low coverage for Life. The “without cover” pension plan does not have life cover. In the event of unfortunate death of the policyholder, the nominee will only get the corpus (till the date of the death).

Life Annuity :
As per this plan option, pension amount will be paid to the annuitant until death. After choosing the “with spouse” option, the amount of pension will be given to the spouse of the policyholder, in case of the death of the insured.

Annuity Certain :
Under this policy, the annuity is paid to the insured for a defines period (specific number of years). The annuitant can decide on the period and if he/she dies before exhausting all payments, the annuity will be paid to the beneficiary.

Guaranteed Period Annuity :
As per this annuity option, annuity is given to the life assured for specific periods like 5,10,15 or 20 years, whether or not he/she survives that duration.

Pension Funds :
Since these plans remain in force for long periods of time, they offer relatively better returns at maturity. Pension Fund Regulatory and Development Authority (PFRDA), the government body has allowed 6 companies as fund managers.

National Pension Scheme (NPS) :
One can put savings in the new pension scheme which will be invested in equity and debt market as per the preference of the insured investor. He/She can withdraw upto 60% of the amount at retirement and rest 40% must be used to purchase the annuity.

Why does an Individual need a Pension / Retirement plan?

In today’s age of nuclear families, most retired/elderly persons need to fend for themselves physically and financially and hence it is very important to have a proper retirement plan to ensure a steady flow of interest income (from investments) or a corpus which one can draw on to meet ongoing daily needs. The most important aspect of these pension plans is that they try and ensure that most elders continue to life and experience their existing lifestyle eventhough they do not have a fixed income coming in. Planning for a secured financial future post retirement is not something that one must plan for and invest in one year before retirement, but needs to take shape atleast for 10-15 years in leading upto retirement to ensure a sizeable corpus is thus built for the retirement period. Retirement planning hence needs proper planning and to some extent financial discipline to set aside a part of earnings for a later rainy day. They key reasons for retirement solutions thus are:

  • The corpus created for retirement helps in dealing with any unexpected emergency – which requires financial intervention.
  • Once an individual has appropriately planned for retirement, he/she can then have less stress and anxiety and can lead a peaceful retired life by maintaining their existing lifestyle and very importantly not depend on anyone else.
  • The other advantage in having this retirement corpus if there are any unforeseen medical emergencies for any family members, these investments will come in handy.
  • With the help of these funds, the insured can be assured of a guaranteed and regular income after retirement as an annuity to take care of monthly expenses.

The key notes for Retirement Planning are:

  • It’s never too early or too late to start planning and investing towards retirement – this involves understanding the level of expenses likely to be incurred and ensure the corpus takes care of these expenses.
  • In India today, there are dime a dozen pension plans across various insurance companies and hence the insured has an opportunity to compare and choose the most appropriate plan for their requirements.
  • One must be prepared financially to meet any unexpected emergencies through insurance policies, be it Life Insurance, Personal Accident, Health insurance – one must ensure these policies are in place

Life Insurance Pension insurance products

Max life Pension plans

Key Features:

  • Max Life Pension Insurance plans are insurance products aimed to provide you financial security when your income stops.
Aegon Life Pension plans

Key Features:

  • Insta Pension Plan is an annuity plan that gives the insured an immediate pension to take care of your basic needs.
Edelweiss Tokio Pension plans

Key Features:

  • Pension Insurance plans are insurance products aimed to provide you financial security when your income stops.

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