Pension plans can be seen as an effective means to invest in our retired life. Such plans help accumulate savings over time to build a reliable corpus that helps meet daily living expenses, account for unforeseen expenses, and meet future goals with ease even in retirement. Today, several retirement plans are available for individuals and they have been designed to provide them with a steady flow of income throughout the retirement phase. By simply saving a part of income in one’s working years and investing them into the best retirement plans individuals can build a corpus for their life after retirement without straining their immediate finances.
However, the ease with which they can build a retirement corpus would depend largely on the type of pension plans they choose to invest in through the years. This makes it important to pick plans that offer steady income and secure one’s financial future.
Types of Popular Pension Plans
Today, individuals can access multiple pension plans to mobilize their savings. There are some of the best retirement plans available for access –
Deferred Annuity
This type of retirement plan allows individuals to accumulate funds through either a single lump sum amount or regular payouts. In this case, the pension is usually paid after the end of a predefined policy tenure. Additionally, these plans offer tax benefits where a third of the corpus is free from taxation and the remaining is taxed as per tax slab. Notably, the sum invested in this retirement plan is locked, which means one cannot withdraw it prematurely.
Immediate Annuity
This retirement plan offers individuals access to a pension immediately after they make an upfront payment of a large lump sum. These categories offer several options to individuals. Notably, premiums paid towards immediate annuity plans are exempted from taxation under the Income Tax Act. Under this scheme, the policy nominee avails money in case of the sudden demise of the insured during the active policy term, extending financial protection to the family.
Life Annuity
This plan extends payouts to the annuitants until their death. If annuitants select the ‘with spouse’ option then the pension is transferred to their spouse in the event of their untimely death.
Annuity Certain
Under this category, individuals receive an annuity payment for a given period. The annuitants also have the flexibility to choose their payment period. In case they die before they receive the complete payout, the remainder amount can be paid to the annuity plan’s beneficiary.
Guaranteed Period Annuity
This category offers payouts to policyholders for a given period, say 5, 10, 15, or 20 years. Under these retirement plans are disbursed regardless of whether the insured survives the tenure.
National Pension Scheme (NPS)
This government-backed pension plan is counted among the best retirement plans in India. The amount of money invested towards the National Pension Scheme gets parked in popular debt and equity funds. This helps the scheme to generate substantial returns on their invested returns. On maturity, individuals can withdraw 60% of the funds on retirement and use the remainder to purchase an annuity. Notably, the proceeds on maturity are exempted from taxes. Another popular pension scheme is the Atal Pension Yojana scheme, which is also known to allow individuals build a retirement corpus over time. Besides its lucrative features, the plan accompanies a simple steps of how to check Atal Pension Yojana balance, which enables accountholders to track their corpus growth with much ease.
Pension Funds
These are essentially long-term pension plans that are regulated by the government and are managed under the Pension Fund Regulatory and Development Authority (PFRDA). These funds offer substantial returns on maturity than most plans. This plan allows individuals to access funds and withdraw annuity during its aggregation stage, making them a reliable fund option for emergencies. It helps individuals avoid relying on external financial sources or bank loans during emergencies.
Whole Life ULIPs
These plans are designed for long tenure to offer financial protection for the entire life of individuals. While life ULIPs allow individuals partial withdrawals, post-retirement they can gain tax-free income. Individuals can also make additional withdrawals as and when needed.
Defined Contribution
In this plan, income may not be guaranteed but the contributions are promised. Notably, both employers and employees can contribute towards this plan. These contributions determine retirement savings and returns on investment.
Defined Benefit
These retirement plans offer guaranteed income for retirement. However, the benefits depend on the earnings and service offered to their employer.
What are the key benefits of retirement plans?
These are the key features and benefits of pension plans –
Annuity: This offers a fixed payout to individuals each year throughout the tenure. However, based on the plan, the annuity can be deferred or immediate. This helps plan finances as per one’s needs.
Sum Assured: It is a definite sum of money that is given to the plan’s nominee at the end of the tenure. Typically, the amount is 10x the annual premium or the policy fund value. This helps build a reliable financial safety net for self and family.
Vesting Age: It is the age from when investors start receiving a payout from their chosen monthly plan.
Payment Period: It indicates the period when individuals receive payouts after retirement. The goal is to make this period less dependent on others for financial help and become self-reliant.
Accumulation Period: It is the time period during which the investments accumulate to offer regular payouts to individuals. The goal is to invest as much as possible into pension plans during this phase.
Surrender Value: It is the amount of money individuals would avail when they surrender the scheme prematurely. A substantial surrender value can help tide over unforeseen situations.
Tax Benefits: retirement schemes offer financial security by extending benefits like tax savings, systematic savings options, and flexibility to choose and customize investments. This helps save money and plan finances more effectively.
Retirement plans in India tend to focus more on creating annuities that can help generate a steady cash flow post-retirement. These plans are designed to offer Individuals with guaranteed income to account for daily expenses. The returns on investment allow individuals to accumulate wealth to safeguard their financial freedom after retirement and meet certain needs to lead a comfortable and financially sound lifestyle post-retirement. Based on their plans and objectives, individuals can use these plans to reach their goals.