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Your pension needs will differ if you are salaried, running your own business, or involved in a profession. “One-size-fits-all” concept fails when it comes to financial planning. You can choose a suitable pension plan out of the different types of funds to meet your needs and tailor them to achieve all your goals.
You can accumulate a corpus for your retirement through a single premium payment or regular premium payment over a policy term. After the policy tenure is over, you will start receiving pension. One-third corpus is tax-free on withdrawal, while the remaining two-thirds are taxable.
The amount is locked, and you cannot withdraw it for any emergency. This pension scheme is suitable for salaried employees since there is an option for a regular premium.
Also Read - Deferred Pension
Under this plan, you start receiving a pension immediately. You pay a lump-sum amount, and you start getting the annuity based on the amount you have invested. You can choose from the range of annuity options under this plan.
The premium paid is exempted from taxation as per Income Tax Act, 1961. In case of the demise of the policyholder, the nominee continues to receive the pension during the tenure of the policy.
The majority of the pension plans offer life insurance cover with annuity option. In case of the demise of the policyholder, beneficiary will receive the benefits. The primary purpose of the plan is to offer a sustainable pension to the retiree.
And the life cover ensures financial safety for the partner in case of the early demise of the policyholder. A nominal part of your investments in these types of pension funds goes towards the risk cover.
Under this type of pension plan in India, you receive an annuity for a certain period which is in multiple of five - 5 years, 10 years, 15 years, or 20 years, depending on the flexibility of the plan that you have chosen. Even if the life assured passes away, the beneficiary will continue to receive the annuity that will help them to meet their financial goals in the absence of the policyholder.
With this type of pension plan, you receive the annuity for a specific number of years (for example, between age 60 and 70). In case the policyholder passes away before the end date of the policy, the nominee will continue to receive the annuity till the tenure of the policy ends. Such pension plans help you to meet your retirement goals, which will eventually lead you to live a worry-free post-retirement life.
If you choose a life annuity plan, you will continue to receive the pension amount until death. If one chooses the option ‘with spouse’, the spouse will continue to receive the annuity even after the demise of their partner. It is one of the ways to secure the financial future of your partner, especially if they do not earn. Creating a financial cushion will help in absorbing the shock if something were to happen to you.
Pension funds are long-term plans that offer comparatively higher returns upon maturity. These types of pension funds are regulated by Pension Fund Regulatory & Development Authority (PFRDA). At present, only 6 fund houses in India are authorized to offer pension funds. You can choose to invest a lump sum or in smaller amounts – you will get a steady income post retirement with pension funds.
This plan is one of the two types of pension plans in India which are also used by the Government of India. The plan gives you an option to invest in equity and debt funds depending on your risk profile. You can withdraw up to 60% of your corpus at retirement, and the remaining 40% is used to purchase the annuity. NPS accounts are generally of two types a) All Citizen Model, and b) Corporate Model.
This is also one of the types of pension plans that is backed by the Government of India. It is regulated by EPFO. This scheme is available for salaried individuals and HUF investors. In EPF, you are required to contribute a certain percentage of your basic wage. The current rate is 10 to 12%. This is matched by your employer. Once you retire, you can receive the total funds contributed, along with the interest rate.
With so many types of pension plans available, you can follow the below steps if you want to buy the best pension plan
You should look for the following features while buying any type of pension funds in India to secure your retirement:
Your investment into a pension plan depends on whether you are investing for:
|Investing for Post-Retirement Income||Building Retirement Corpus|
Assume your current age is 30, and your expected lifespan is 85 years. Your current monthly salary is Rs 60,000, and you wish to retire at the age of 55. Your current monthly expenses are Rs 30,000, and it will be the same post-retirement after adjusting for inflation.
To get Rs 1 lakh p.m. post-retirement, you will need a corpus of Rs 2.2 crores approximately. To achieve this amount at 55, you will need to start investing Rs 15,200 per month from the age of 30. The investment amount should increase with your income for the next 25 years (in this case the growth rate was 5%).
Different plans will need different amounts, for example:
A pension is a type of income that you receive after your retirement. It is a regular income stream that helps you to get through your daily expenses post-retirement. To receive a pension, you are required to invest regularly, a part of your income, into certain funds. These are known as pension or retirement funds.
You contribute to this fund regularly till you retire. Through this corpus, you receive regular payments.
There are many types of pension funds in India, these are divided into 4 broad categories. These 4 types of pension plans are:
There are certain plans that the government has specifically introduced so that you are able to create a good corpus for your retirement. Plans such as National Pension Scheme (NPS),EPF and PPF come under this category.
These are the type of annuities in which the income to be received is deferred to a later date. Thus, returns are started after some time of the premium payment.
In this type, a lump sum is contributed to a regular income stream at the time of pay-out. Here the payment starts almost immediately unlike a deferred annuity.
These are options that not only provide you with a regular monthly income after retirement but also life coverage. Thus, if you die during the plan, your family will receive a sum assured.
A pension plan is a kind of insurance cum investment plan. In this, you pay a regular (or lump sum) amount to the company to build a corpus over time. Upon maturity (your retirement), your corpus is paid to you in the form of monthly payments. In case the insured dies, the beneficiary receives the sum assured along with bonuses, if any.
The regular payouts you receive under a pension plan post-retirement are called an annuity. In most cases, the annuity duration is monthly. However, it can be quarterly or half-yearly, or yearly.
A pension plan assures a regular income post-retirement and gives you social security. By investing in the best pension plans, you live your second inning as per your choice and without worrying about the money.
The early you start, the better it is. If you start early, the returns you will get from your policy will be higher because of compounding. The best time to start investing is as soon as you receive your first salary. You can start by investing small amounts and later increase your premium amount as your salary increases.
A pension plan is to secure your time post-retirement, while a term plan is to give financial backup to your family in case of your demise within your working life. Though some pension plans also offer life cover, the amount is not good enough.
Yes, you should still buy a pension plan. The growing inflation will make your PF amount look quite small by the time you retire. It won't be enough to meet your future requirements. With age, the medical expenses will increase, and you will need an investment plan like a pension plan to help you with your post-retirement expenses.