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How to Build a Tax-Free Pension Income for Retirement?

dateKnowledge Centre Team dateMay 28, 2021 views112 Views
Buy Retirement and Pension Plan | Best Retirement Plan Online

Everyone dreams to relax at their retirement and reap the benefits of all the hard work they’ve done. And it is only possible if you are having a regular income source even after your retirement. Pension allows you to live the golden years of your life stress-free and it becomes a necessity if you have a dependant spouse.

However, unless you are investing right, you may end up paying a good amount of income tax on your pension. Here are a few investments you must include in your retirement portfolio to enjoy a tax-free pension income in your golden years.

2 Ways to Build Tax-Free Pension with Invest 4G ULIP

Unit linked insurance plans like Invest 4G, are versatile long-term investment plans. You can use them to build a strong retirement corpus and use the features in the plan to draw a tax-free pension after you retire. Thus, ULIP plans can serve three essential purposes for you:

  • Life protection
  • Wealth creation through investment
  • Regular income stream after retirement

You can use Invest 4G ULIP plan to build and draw your retirement pension, without having to change your investment plan. Here’s how:

1. Building the Retirement Corpus

Invest 4G comes with three cover option i.e., Life, Care and Century Option. The first step is to choose the right plan for your purpose:

  • Life Option: In this option maximum entry age is 65 years and the maximum maturity age is 80 years. However, with a maximum policy term of just 30 years, you need to start the plan at the age of 50, to continue it till 80.

    Though you can still use this option to build your corpus, you will likely have to switch the plan near retirement for a long-term pension.

  • Care Option: For this option, the maximum entry age is 50, the maximum maturity age is 80 and the maximum policy term is 30 years. Thus, for the retirement pension goal, this option is the same as the Life Option. However, it is better suited for your child’s financial goals like higher education etc.
  • Century Option: This is the whole life plan which you can start at the age of 18-65, which continues to serve you till the age of 100. With a maximum policy term of 99 years, this option is best suited for your tax-free pension goal
  • Buy Retirement and Pension Plan | Best Retirement Plan Online

If you are starting at the age of 30, you have ample time to use equity funds to grow your retirement corpus. Using Invest 4G ULIP plan you can build your corpus while managing your portfolio risk automatically:

  • Use automated portfolio management strategies to manage your portfolio of equity and debt funds
  • Systematically switch your equity fund corpus to debt funds over a few years to avoid missing market rallies and losses due to downtrends

For instance, before you start drawing your pension you would want to move away from the equity and use only debt for safer growth. ULIPs are the best for this purpose as such switches are free of charge and taxes.

2. Drawing Pension from Invest 4G Corpus

Invest 4G ULIP plan has the feature of a systematic withdrawal plan. You can decide on the amount you want to withdraw and the frequency of withdrawal. For example, you want to withdraw Rs. 1 lakh every month from the plan.

Once you have decided the amount, submit your request. Just keep in mind the following two conditions:

  • You can withdraw 1% to 12% of the fund value in any given year
  • Your total fund value in the plan should not fall below the life cover sum assured of the plan

The sum assured is the original promised life cover in the plan. The reason why you need to maintain a fund balance above this number is to avoid the mortality charge on your funds.

Mortality charges in a ULIP plan are applicable for the life cover amount which is the balance of “Life Cover Sum Assured – Fund Value”. Thus, so far as your fund value is beyond the life cover amount the mortality charge will be zero.

Since any withdrawals from a life insurance plan are tax-free under section 10(10D) the partial withdrawals from a ULIP in the manner of pension will also be tax-free.

This is how Canara HSBC Life Insurance helps you with its Invest 4G to live your golden years peacefully without compromising your pride and lifestyle.

How Retirement Savings Attract Taxes?

Some long-term investment options can serve you at retirement along with the tax benefits. These are as follows:

Retirement Plans Taxability on Withdrawal

Public Provident Fund (PPF)

PPF is a long-term investment in a combination of risk-free securities backed by GOI where the lock-in period is 5 years and the minimum holding period is 15 years.

Any partial or lump-sum withdrawal from the PPF account is fully tax-exempt.

National Pension Scheme (NPS)

It has two options tier-I and tier-II account:

  • Tier-I is the compulsory account of NPS where your fund has been accumulated till the age of 60.
  • Tier-II account has the same feature as Tier-I, but the investment is taxed and has no lock-in period.
  • Employer’s contribution up to 10% of salary is exempt from tax
  • Lump-sum receipt up to 60% of the pension is tax-free
  • While at least 40% invested in annuity product will be tax-free but interest earned on annuity will be taxable.

Employee Provident Fund (EPF)

It is the compulsory contribution of employee and employer throughout employment that gives a fixed rate of returns.

  • Employee’s contribution is tax-free
  • Employer’s contribution up to 12% of salary and interest earned below the notified rate on EPF is tax-free
  • Withdrawal made after 5 years of contribution would be tax-free

Unit Linked Insurance Plan (ULIP)

ULIP is a combination of life cover with an investment option.

You can invest in a mix of equity and debt funds as per your risk appetite

Interest earned on your investment and death benefits both is tax-free.

Guaranteed Savings Plan

This is a non-linked endowment plan, with a life cover and guaranteed maturity benefits.

The amount you receive on maturity or death is entirely tax-free.

Guaranteed Income4Life

This is an insurance cum savings plan, which guarantees you a regular income for a lifetime.

Regular income from this plan is tax-free under section 10(10D)

Thus, you can see that most of the plans which allow you to build your retirement corpus also provide tax-free maturity. However, when it comes to pension, you need to be more tactful, you can use some of these plans to build a custom pension income after you retire. Retirement is the golden year of your life; hence, saving for retirement at an early age will help you plan for contingencies. Also, you do not have to depend on anyone for your finances if you can secure a regular income stream. Start saving early and secure your retirement.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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