The Buyt Desk
You must have a robust retirement plan to help you sail through your non-working years. It has to be planned well and very early in life to achieve the target financial independence for old age. Planning for retirement is an essential part of one’s life and a phase that everyone will go through. Currently, India is facing a high rise in inflation level and Indian senior citizens have limited social security initiatives. This makes retirement planning even more crucial and needs to be planned early.
The meaning of Pension Plan
A pension plan is a financial tool that aids you to save funds by means of investing a certain amount on a regular basis. By the time you stop working because of old age or health issues, this amount would have grown many folds. Pension planning consists of two phases, the Accumulation period and the Vesting period. The accumulation period is the time when one invests a certain amount regularly until they retire. And Vesting period is the post-retirement phase when one gets a fixed monthly fund for life.
The factors to be considered while planning
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Liquidity terms – Is withdrawing some or all funds before your retirement allowed and the terms and conditions for withdrawal?
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Vesting age – When will one start getting pension and till what time?
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Current financial condition – How much can you invest now for your retirement?
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Future plans – How do you want your retired life to be?
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Age – How long do you have before you retire?
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Accumulation period – How long can you invest/pay for a pension plan?
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Family, kids – How big and how much will you need to save for them?
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Risk profile – How risky is your current job or income?
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Investments and commitments
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Tax benefits
Types of Pension Plans in India
National Pension Scheme (NPS) – It is launched and managed by the Central Government of India. The funds invested will be distributed in equity and debt markets as per the preference of the investor. Post-retirement, one has an option to withdraw the whole amount at once if the total corpus is 5 lakhs or less than 5 lakhs. If the corpus is more than 5 lakhs then a withdrawal of 60% of the corpus is allowed and the rest should be used to buy the annuity.
Deferred Annuity – A policyholder pays a preset amount regularly for an agreed number of years in the accumulation phase. At the end of the accumulation phase, using accumulated funds immediate annuities are brought, which will facilitate a regular income for life. And if the beneficiary dies, the nominee becomes the beneficiary.
Immediate Annuity – the premium amount is paid in one lump sum and annuity begins immediately i.e., receiving an annual or monthly allowance with instantaneous annuity programs. And if the beneficiary dies, the nominee becomes the beneficiary.
Annuity Certain – The policyholder is paid the pension amount for a specific period and the policyholder can decide the period as per their needs and requirements. The nominee is entitled to claim the pension in case of the death of the policyholder.
Pension Plans with/without Life cover – If pension plans with life cover have opted for, policyholders will get a double benefit of pension and life insurance. During the accumulation time, if the policyholder dies, the beneficiary will receive the cover, else this is a standard annuity for the post-retirement period. If pension plans without a life cover have been opted for, then there will be no cover for the policyholder’s death during the accumulation period.
Whole Life ULIP – In whole life unit-linked insurance plans (ULIP), the money remains invested for the lifetime and keeps earning returns. Here, as per the convenience of the policyholder, the funds can be withdrawn. Till the beneficiary is alive, this policy holds good. And if the beneficiary dies, the nominee becomes the beneficiary. The premium paid for this policy is exempted from tax under section 80(C).
Life Annuity – The policyholder can pay a premium on a regular basis or as a lump sum amount. Pension is paid till the death of the policyholder and the spouse continues to receive the pension after the beneficiary’s demise.
Summing up
The shortcoming of booming economies is inflation, the increased cost of living. By the time you retire, the cost of living will definitely be much higher than today. So plan early and start investing. The earlier you start, the premium you need to pay will be less. We hope we are successful in giving you an insight into the types of pension plans and helping you invest well for a secure future. Choose the pension plan that matches your needs and lifestyle and invest today so that you do not have to compromise your needs after retirement.
The one who gave birth to you isn’t your emergency fund and the one you gave birth to aren’t your pension fund. Invest in a pension plan for yourself and Happy Investing!
