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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 that 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. However, 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.
Deferred pension schemes are similar to deferred annuities. You may opt to get a lump sum on or after a certain date or avail yourself of regular payouts 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.
An annuity is a term used to refer 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:
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 a “deferred annuity.”
If you are already at retirement age and have a lump sum amount, you can buy an “immediate annuity”, wherein the pay-out begins immediately.
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Based on other features and benefits, you can subscribe to the following types of deferred and immediate annuity plans:
In India, there are currently around 77 lakh people who are pensioners.
Source: The Hindu
Deferred pensions come in different varieties and are described below:
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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:
Retirement should be carefully planned so that you can live peacefully and free of worries. To continue leading the 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.
To be eligible for deferred pension, you must be a EPFO or the Employees Provident Fund Organisation member.
A deferred pension is a good idea because you can get pension benefits later while letting your pension investment grow.
You can withdraw funds from a deferred pension plan, but this is entirely based on the terms and conditions of the specific pension plan.
A deferred annuity is taxable in India only if you withdraw, take out a lump sum amount or start getting income from the account.
A deferred pension plan carries risks such as market fluctuations affecting investment returns, potentially resulting in lower retirement savings. Inflation eroding the purchasing power of future pension benefits could also impact the plan's stability and payouts upon retirement.
You can transfer your deferred pension plan to a new insurance provider. But you can only do so if both your current insurer and your new provider can accept the transfer.
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