Pension is one of the most important components of your post-retirement financial life and how you manage the pension is as important as receiving the pension amount. One of the greatest challenges post-retirement is tax saving as any pension is taxable as salary income.
So, any pension product that you use for receiving regular pension after retirement will give you two options:
You have several saving plan options to create your ideal pension post retirement. However, you should note that if you want to receive tax-free money after retirement, you need to have a plan prepared in advance.
While experts suggest that you should start saving for your retirement between 45-50 years of age, there is no specific age to start investing in a pension plan because the earlier you start the better. Here are the most popular investment options to consider:
National Pension Scheme or NPS is a great tool for achieving your retirement goal. But if you have not invested in NPS so far, worry not and start immediately. You can begin as early as possible or move your retirement corpus to a NPS account by the time you turn 50. A NPS account matures when you hit 60,
NPS allows you to withdraw 60% of your total corpus tax-free. The remaining 40% must go to the pension component, paid at maturity. Also, you can defer your withdrawals for both options until the age of 70. So, here’s how you can make the best use of its features:
Now you can run your expenses using your lumpsum money for only 10 years. You will still need a pension after that. To build your alternate pension, you can withdraw the pension corpus and invest in deferred annuity plans.
This will help you start your taxable pension later. Plus, pension plans like Pension4Life from Canara HSBC Life can give you additional benefits as a NPS account holder.
Also read - Is Pension Taxable?
If you are below 50, you can start moving your corpus to ULIP plans, and ensure that the corpus you want to use for pension is in ULIPs. ULIPs are the only way you can create a tax-free pension for yourself.
Before you jump into this investment, here are a few things you need to remember and follow a structured plan to ensure tax-free pension:
Maximum maturity age of ULIPs is about 80-85 years unless you opt for a whole life option, where maturity age is 99 years. One of the ULIP plans which offer whole life option is Canara HSBC Life’s Invest 4G Plan.
You can start withdrawing funds from ULIP for your monthly expenses from the age of 60. Your entire withdrawal amount will be exempt from tax regardless of the amount. Your interest from the savings account will still be taxable if it exceeds the limit of Rs. 50,000 per annum, which means if your savings account gives you a 6% interest you can withdraw up to Rs 8.3 lakhs a year without tax.
So, if you are below 50, you should consider moving your entire pension corpus to ULIP plan, preferably with a whole life cover option. So, you can enjoy a tax-free pension throughout your life. Another benefit of whole life ULIP is that in case of your natural death the remaining corpus will go to your surviving spouse or children.
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It may not always be possible for you to create a customized pension plan, as you have seen the many conditions attached to them. The most prominent condition is age. In case you are starting late, chances are you will have to bank on the traditional pension plans only.
Some of the most popular traditional pension plans are:
With so many pension and retirement plan options available to create a post retirement income, it still pays to plan and start investing early on.
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