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What happens to your pension plans after your death?

dateKnowledge Centre Team dateAugust 02, 2021 views234 Views
Best Pension Plan in India | Buy Retirement Plan

You wanted to get into the best IT Conglomerate at 22, bought your first set of wheels at 25, and plan to get married to your childhood sweetheart very soon. You both want to build your dream vacation house at retirement away from the rush of the metropolis and bring up two lovely kids who will get the best possible education and lifestyle. Starting up a venture in your late 40’s and travelling around the world could be some other tasks on your Wishlist.

And in the end, who does not want to spend the sunset years comfortably without having to worry-at least about money?

A close observation of the above aspirational lifestyle points to a clear trend in increasing expenses as you traverse through different stages of life. Despite having the perfect blueprint of life, there are bound to be temporary setbacks that may pull you down. Planning for such unexpected contingencies is also important so that you bounce back and quickly start over again.

At 22, you were content spending on movies and food but post your wedding, you went on a honeymoon and annual vacations. Paying for a new house while spending on children’s school fees was added to the expense list.

Whichever stage you may currently be in, you have surely noticed that some expenses are closely linked to the stage of life. As you rose in your career, your salary kept growing to match your lifestyle expenses and to meet your professional and personal aspirations. But have you thought about the second innings?

How does your Pension Plan work After Death?

You will continue to get annuities till the end of your life after which the purchased/invested amount would be given to your nominee. In case you have opted for a Joint Life Annuity, your spouse would continue receiving annuity even after you until his/her demise. The purchased/invested amount would then be handed over to the nominee.

Retirement is a phase that should be enjoyed, not endured. Early planning, regular investments, and appropriate choice of pension plans can help you live your second innings with dignity, fun, and excitement.

Stages of Wealth or Retirement Goal

Building a corpus fund for your second innings cannot happen overnight. The earlier you start, the better it is. You will reap the full benefits of Power of Compounding if you start well before you need it. Wealth creation requires patience, focus, and consistency over the long term.

A typical Wealth Management process moves in this order:



Figure: Wealth Creation > Wealth Preservation > Wealth Distribution

Wealth Creation – Building the Retirement Corpus

You may have observed that young entrepreneurs have a higher risk appetite primarily because of lower financial commitments and smaller opportunity costs of quitting jobs and running ventures, full-time. The same applies to savings and investments. When you are young, you must invest a sizeable chunk of your hard-earned money in high-growth equity funds that have a long-term horizon.

Wealth creation requires risk-based investment approach. When you are young, you have more time at hand, and you can invest aggressively. But as you age, you need to reduce your portfolio risk.



ULIP plans are good investment options for wealth creation because you can:

  • Invest in high-risk high-reward equity funds along with debt funds
  • Change your portfolio mix on the way anytime
  • Preserve your corpus from market volatility near maturity

For example, the Invest 4G ULIP plan from Canara HSBC Oriental Bank of Commerce Life Insurance systematically switches the equity fund to a debt fund in the last 4 years of the policy. The safety switch gets activated so that your corpus growth in equity remains safe from the market downtrends.

Learn how to check if your retirement corpus is enough.

Wealth Preservation – Calm Before the Retirement

This is a consolidation phase wherein you put together all the wealth that you aggressively accumulated during the Wealth Creation phase. In this phase, you must avoid too much risk and look at the safekeeping of your hard-earned assets. The equity allocation must gradually dwindle and you must start moving your money to safer instruments such as bonds, fixed deposits, debentures, G-Secs, etc.

The margin of error in decision-making must rapidly decrease in this stage because you will not have much time to bounce back. The investment plans you can focus on in this stage are mostly the safe investment plans:

1. Guaranteed Savings Plan: Maturity value is guaranteed but also tax-free. Thus, best for preserving your capital against inflation and taxes.

2. Guaranteed Income4Life: As the name suggests, this plan can offer you and your spouse regular income until the last surviving spouse reaches 99 years of age.

3. Pension4Life: Invest a large corpus and defer the income until you need it. The corpus continues to grow in the meantime. Also provides the income until natural demise.

Wealth Distribution – Retirement Pension Plan

In this phase, income from salaries would typically stop or taper down due to retirement or the inability to work beyond a certain age. The only sources of income, at this stage, would be the assets accumulated during the earning years. If you plan your investments well during the accumulation and preservation phases, you will have a comfortable income-generating corpus fund at this phase.

Life insurance retirement plans give a dual benefit of providing life cover as well as a predictable stream of income post-retirement. These pension plans are some of the safest long-term investment plans that give you two (2) options:

1. Immediate Annuity: The pension starts as soon as you invest a lump sum amount

2. Deferred Annuity: Invest gradually and start a regular stream of income a few years later

The regular income stream that you receive post-retirement is called the Annuity. The Pension4Life plan of Canara HSBC Oriental Bank of Commerce Life Insurance offers both annuity options.

If you have recently retired and would like to invest a large corpus to earn regular income streams, the immediate annuity option suits you well. If you have a few years left to pull down curtains on your full-time work, opt for a deferred annuity because you can invest over the years to build a corpus.

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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 www.canarahsbclife.com.

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 Oriental Bank of Commerce 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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