A deferred pension is a pension that you delay accessing until later in your retirement. You can get more potential retirement income if you delay taking your pension. Deferring a pension can be a smart strategy if you do not need your retirement income immediately.
A deferred pension is a term which refers to pension investments where the pension does not start immediately. Instead, you can choose to start the pension after a few years. Thus, in real life, you can invest a large lump sum amount in a deferred pension plan while you are still working. You will aim to receive the pension when you retire.
The money will continue to grow until then. Although the growth continues even after the pension starts. but with withdrawal, most of the accrued interest is paid out.
Pension is money paid to you each month after you retire. The amount paid depends on the retirement corpus created during your earning years. You will continue receiving a pension until the end of your life. Your spouse may also receive a pension after your demise depending on the pension plan that you have opted for.
Type of Annuity Plans
An annuity is a term used for referring to this regular income post-retirement. Annuities are designed to mitigate the risk of living beyond what your savings would have supported you. Annuity plans are the investments you can use for drawing your pension, and there are the following two types of annuities:
- Deferred Annuity
- Immediate Annuity
The pre-retirement saving phase is called the “accumulation phase” whereas the post-retirement pay-out phase is termed the “vesting phase”. This type of annuity is called “deferred annuity”.
In case you are already at retirement age and have a lump sum amount, you can buy an “immediate annuity”, wherein the pay-out begins immediately.
Types of Deferred and Immediate Annuity Plans
Based on other features and benefits you can subscribe to the following types of deferred and immediate annuity plans:
1. Life Annuity:You will get annuity at the opted frequency (monthly/quarterly/yearly) until your demise. The annuity pay-outs stop thereafter.
2. Life Annuity with Return of Purchase Price:You will get annuity in the opted frequency (monthly/quarterly/yearly) until your demise. After your demise, the corpus used to purchase the annuity will be paid to your spouse/nominee.
3. Annuity for a Guaranteed Period:The annuity is paid for the guaranteed period, even after your demise. Annuity stops either on your demise or on completion of the guaranteed period, whichever is later.
4. Joint Life Annuity:Annuities are paid until either you or your spouse is alive.
5. Joint Life Annuity with Return of Purchase Price:Annuities are paid until you or your spouse is alive. After the demise of both, the nominee will get the original corpus.
What is Deferred Pension?
Deferred pension schemes are similar to deferred annuities. You may opt to get either a lump sum amount on or after a certain date or avail of regular pay-outs in the form of annuities.
If you are, say, in your thirties, you must work towards building a corpus by investing regularly. Starting early gives you the advantage of allocating your investments to high growth funds so that you initially build wealth and then move into conservation mode as you approach retirement.
Types of Deferred Pension Plans
Deferred pensions come in different varieties and are described below:
1. Fixed Deferred Pension:In a fixed deferred pension, you get a fixed amount each month. The amount depends on the corpus built during the accumulation phase. However, in this case, a minimum floor amount is guaranteed and the pension amount will not be below this figure. It can be higher but not lower than this floor amount.
2. Variable Deferred Pension:Your contribution, during the accumulation phase, is invested in equity and debt instruments depending on your age and risk appetite. The pension amount will vary depending on these factors.
3. Indexed Deferred Pension:An indexed pension scheme is linked to the inflation index like CPI (consumer price index). CPI represents the general growth in consumer prices and the plan can increase or decrease your pension accordingly.
4. Longevity Pension:This pension scheme has a lifetime payment guarantee feature which means your other savings will be untouched until the end of your life.
Why should you Invest in Deferred Pension?
Deferred pension schemes allow you to withdraw money from your accumulated corpus. You may either withdraw the full amount or withdraw some portion of it whenever you want. Here are a few more advantages of deferred pension plans:
1. Multiple Pay Out Options:You can select the pay-out option that best suits your needs. Check the scheme offered by the insurer and buy your annuity accordingly.
2. Delayed Pay Out:You can delay the pay-outs and therefore your pension income will start flowing in each month only when you want them to start. You can even opt to take a lumpsum payment at the end of the accumulation phase.
3. Adding Funds:Before the pension payments start you must invest to build a corpus. This period, called the accumulation phase, is in the earning years when you invest regularly. You may also buy a pension plan by investing a lumpsum amount. Let us say, you get a huge kitty from your PPF or PF at the time of retirement. You can choose to invest this in a pension plan and start immediate pay-outs.
Pension Plans by Canara HSBC Bank of Commerce Life Insurance
Life insurance retirement plans are some of the most reliable long-term deferred pension plans. Canara HSBC Bank of Commerce life insurance offers deferred pension plans. These plans offer life cover as well as regular pay-outs in monthly, quarterly or annual modes post-retirement.
1. Pension4Life Plan
The Pension4Life plan of Canara HSBC Bank of Commerce offers both immediate and deferred annuity.
a) If you have recently retired and have a large retirement kitty (received from PPF/PF/Gratuity/other sources), the immediate annuity option suits you well.
b) 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.
2. Guaranteed Income4Life Plan
The Guaranteed Income4Life Plan offers some additional features under the premium protection option to financially secure the goal in case of your untimely demise or disability. Future premiums are waived off in case of untimely demise or permanent disability.
a) Bonus additions
b) Option for lifetime income
c) Life cover for the financial security of spouse
Learn about Guaranteed Income4life Plan.
In case of untimely demise, the nominee will receive the sum assured immediately and the fund value at the time of maturity. S/he can opt to receive the fund value in regular/periodical streams or as a lump sum.
Retirement should be carefully planned so that you can live peacefully and free of worries. To continue leading a lifestyle that you are living now requires systematic investment during your earning years. Build a solid corpus by the time you retire and then earn cash flows post-retirement that can support you and your spouse till the end of your life journeys.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.