A Beginner’s Guide on Pension Plans

pension plan

A steady income doesn’t only provide you financial security but a peace of mind that you have an income to lead a comfortable lifestyle. But what happens when that steady income stops once you retire? Your expenses suffer, and eventually your peace of mind.

Retirement should be a phase of life wherein you lead a stress-free life without worrying about your finances. A pension plan ensures just that.

What Is a Pension Plan?
A pension plan is a type of investment cum insurance plan primary offered by employers that provides a steady flow of income after you retire. Both employers and employees contribute to the plan to accumulate earnings that can be used as a post-retirement fund.

However, one can also supplement their retirement funds by investing in retirement plans in India offered by various financial and insurance institutions. These individual pension plans require periodical payment of premiums or investments.

A pension plan even though is designed to be used after the requirement, also provides the luxury of withdrawal before. The retirement pension plan also provides a death benefit in which the nominee can get the accumulated fund in case of the demise of the policyholder.

Benefits of Pension Plan

1. A Steady Flow of Income
Pension plans ensure that you receive a monthly or annual income (whichever you choose) without making efforts. This income can be used towards financing your household expenses, your personal interests etc.

2. Financial Freedom to Invest in your Passion
All of us have dreams of post-retirement life. While some want to move to a secluded town, others want to follow their passions and dreams. Nevertheless, retirement dreams are different for everybody. These dreams and passions require funds to come true. Retirement plans in India can help realize these passions by providing financial means.

3. Death Benefit
Retirement plans in India also have an attribute of life insurance, also known as the death benefit, wherein the accumulated funds of the policyholder are paid out to the nominees upon the death of the policyholder.

4. Flexibility
Retirement and Pension plans allow policyholders the flexibility to decide the term of the premium payment. One can choose amongst a monthly, annual or semi-annual premium payment term. One also has the flexibility to cease the payment of funds, given that the policyholder has paid premiums for the minimum amount of time, as dictated by the pension plan. This is known as Surrender of Policy and is applicable to a charge. However, to ensure that you are not overcharged by the insurance companies, awareness is important.

5. Tax Benefits
Like many other insurance and investment plans, pension plans are subject to tax benefits. The amount paid towards the premium, up to the limit of INR 1,50,000, is tax-deductible.

6. Combats the Impact of Inflation
The cost of living is expensive today. By the time, you will reach your retirement age, your cost of living is going to increase too.

A retirement or pension plan is formulated keeping inflation in consideration so that your retirement life doesn’t have to suffer the blows of inflation.

Some Tips to Follow When Buying a Pension Plan

1. Retirement Planning
If you are wondering, “What is Retirement Planning?”, the answer is simple. It is a type of financial planning aimed towards funding your retirement expenses, lifestyle, and hobbies. Retirement Planning includes calculating a rough estimate of the money you would be needing to lead a comfortable and peaceful retirement life. This rough estimate determines the best pension plans for you.

2. Keep Your Budget in Mind
Your retirement fund requires regular investments. Ensure that the policy you opt for includes the premiums you can afford.

3. Account Your Debts
You must have accounted your future expenditure, inflation, affordability, but have you considered debt payments? One must always reserve some money towards debt payments. As retirement is all about leading a stress-free life, worrying about debts all the time would be the last thing you’d need. That said, mention your debts in your budget.

Types of Pension Plans in India

1. National Pension Scheme:
National Pension Scheme is a government initiative. The subscriber contributes towards the scheme as they work. The accumulation is then paid out once they retire.

2. Deferred and Immediate Annuity:
A deferred Annuity Pension plan aims to grow your savings when you make one-time or periodical payments of premiums. This type of pension plan doesn’t provide payouts immediately. Immediate Annuity Pension Scheme, on the other hand, provides immediate pay-out; however, the payment towards the scheme is one-time or lumpsum.

3. Max Life Guaranteed Lifetime Income Plan
One can supplement their retirement fund by investing in pension plans formulated by insurance and investment institutions such as Max Life. The Max Life Guaranteed Income Plan is an annuity plan that provides a guaranteed income to the policyholder when they retire. The pension roll-out can be monthly, annually, or semi-annually, as determined by the policyholder. The plan provides four annuity options to choose from.

Sources:
https://www.policyholder.gov.in/Unit_Linked_Products.aspx#

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