Pension plan is a retirement plan that lets you save for your old age in a systematic way. Pension plans are provided by insurance companies therefore you are also able to accrue insurance benefits out of the same.
Reasons to Invest in Best Pension Plans in India
You may be having other resources to fulfill your old age needs but investing in pension plans lets you
• Avail insurance benefits while saving for future
• Avail safety for your funds while they grow
How Do Pension Insurance Plans Work?
Since pension plans are made to save for your old age, it is suggested to acquire them as soon as you start earning. Starting early will give longer time to your funds to grow.
You need to consider your present age and retirement age or vesting age while acquiring the pension plan. For instance, if your age is 25 and you are planning to retire at the age of 60, you should have the pension plan that provides you the accumulation phase of 35 years.
Every Best Pension Plans has two phases- accumulation phase and annuity phase. In the former phase you save and invest while in the later phase you receive what you have saved, invested and earned. You can receive your annuities in lump sum or choose to receive the one-third at the beginning of your retirement and rest in equal installments each year.
Types of New Pension Plans
Not everybody starts to plan for the retirement at an early stage of their life. Some like to get annuities immediately without considering any accumulation phase. Keeping this in the view, two kinds of pensions are offered by insurance companies-
• Deferred annuity plan
• Immediate annuity plan
In deferred annuity plan, you choose a number of years for which you want to defer the annuity. This is called as accumulation phase. In the latter one, there is no accumulation phase and therefore you are required to put funds in the pension plan in lump sum.
Pension plans can be classified as either traditional or unit-linked pension plans as well. When you opt for traditional pension plan, your funds are invested in conservative fund instruments like government bonds and fixed deposits. If your pick unit-linked pensions plan, your funds are invested in instruments that give market-linked results such as bonds, stocks and securities.
We can classify the retirement plans on the basis of the term or the period also for which the insured wants to keep receiving the annuities:
• Life time annuity plan: Insured chooses to get fixed amount as annuity for the entire lifetime and the nominee is entitled to get purchase price of annuity and bonus accrued, in case of the death of the insured.
• Guaranteed period annuity plan: Insured chooses to get annuity for a fixed period of time. In case of his death also, annuities are regularly paid to the nominee in place of the insured till the specific time, as agreed by the insured.
• Annuity certain plan: Insured gets fixed amount of annuities for a fixed period. But the plan has an additional provision of life-time annuity if the insured outlives the policy period.
• Joint life/last survivor annuity plan: The insured keeps getting annuities like any other plan but it has an additional provision as well, as per which the insurance company pays the annuities to the spouse or the joint life of the insured, after the death of the insured, for the lifetime.
Benefits of Pension Insurance Plans
• You get to save for your old age in a systematic manner, which reduces your dependency on others and thus give you peace of mind
• Safety of your funds is ensured along with the insurance coverage
• You get longer time to grow your money or get benefits immediately, as chosen by you
• You can choose the number of years for which you want to make investments
• You are entitled to receive annuities in lump sum at once or in installments
• You get the choice of covering your spouse in the same policy
• One-third amount of sum insured received is not taxable
• Annuities received for the fixed period or for life-time, in both ways serve as income source for the retired
• Under National Pension Scheme (NPS), one can claim tax deduction of up to Rs 50,000 per year, U/S 80CC (D) of Income Tax Act. This can be claimed in addition to the limit of Rs 1,50,000 U/S 80C