Pension Plan

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What is Pension Plan?

Pension plan or retirement plan is a type of investment plan which helps you to accumulate a part of your savings over a long-term period so that you can have a secured future post-retirement. With the help of pension plans, you can deal with the financial uncertainties of post-retirement times and ensures a steady flow of income. Even if you have a good amount of savings in other instruments, it would be highly crucial and beneficial to have a pension plan. A pension plan is like a financial cushion for the long-term that ensures that you have a financially sound future post-retirement. In the pension plan, the insured needs to contribute a specific amount on a regular basis for accumulation until the time of retirement. Later, the accumulated amount is given back to the insured as pension or annuity at regular times of interval. With the help of the best Pension plan, you can allocate a part of your savings to ensure future security and financial stability. It is a tool that offers complete safety to the insured to continue living a comfortable life post-retirement and not compromise on the standard of living.

ancial resources. This would lead to extra stress and financial burden to individuals living their post-retirement life. Hence, getting a pension policy and planning for the future helps in dealing with these financial uncertainties in a stress-free manner.

Cover Medical
Emergencies

As an individual gets old, their health-related problems and expenses are likely to get increased. Ageing and health problems are the two aspects that go hand-in-hand. Thus, medical expenses can be a huge dent during post-retirement period, when there is no regular permanent income on a monthly basis. Moreover, the medical and health expenses are rising rapidly. Therefore, with the pension policy, you would be able to accumulate money that would be enough to cover all medical expenses post-retirement.

Diversify across
Asset Classes

Most pension funds give an option to the investors to choose the asset class to which they would like maximum exposure. As an investor in pension plans, you can choose amongst pure equity, pure debt, or a mix of both equity and debt.

Be 
Independent

Looking at the lifestyles of people in modern India, it is evident that it is not always possible for parents to rely on their children for monetary support. There is a culture of nuclear families growing rapidly, with retired parents living on their own. It is with the help of the best pension scheme savings and planning that individuals can be financially independent and tension-free.

Be Prepared for 
Rising Inflation

Inflation is the constant and rapid rise in the price of goods and services. India faces high rate of inflation in all the fields. Hence, it requires us to plan for long-term financial needs of ourselves as well as our family. Proper retirement pension plan is one of the most efficient options of long-term planning and overcoming the risks of inflation.

Features of Pension Plan

Annuity

This is the most distinctive feature of a pension plan, and comes in two types, immediate annuity and deferred annuity. Immediate annuity starts immediately, so you can start receiving the pension right after you pay the lump sum premium amount. In the immediate pension fund, you also get the single premium payment option, so that the insurance company can use the money invested by the policyholder to build up the investor's corpus. In deferred annuity, you start receiving the pension after certain years of premium payment.

Guaranteed 
Pension

On getting retired, under the pension policy, you will receive a fixed and steady income. You can also start receiving this income right after you invest, depending on the plan of your selection and the amount invested. Based on this, you can be financially independent even in the post-retirement life.

Liquidity

Pension plan usually has low liquidity, as it collects money for the retirement. However, some insurance providers offer withdrawal even at the accumulation stage.

*Tax 
Efficiency

Investors in pension plans are liable to receive tax benefits under section 80C.

Sum 
Assured

Sum assured is the pre-defined amount offered to the insured during the policy tenure. The sum assured is determined by different companies in different ways.

Accumulation 
Period

Accumulation period is the time from which you start investing until the time you invest. Investors can choose to pay the premium at one go or in periodic intervals. The premium invested in accumulated over a long-term period to create a future financial cushion.

Vesting 
Age

Vesting age refers to the age from which the investor starts receiving the pension. Most of the pension plans keep the minimum vesting age at 45 to 50 years. Some insurance companies also allow vesting age till 90 years.

Surrender 
Value

Surrender value of a pension plan is the amount the insurance company will pay the investor if they surrender the plan before its maturity. This is possible only if the investor has paid the premium for the minimum period.

How to Calculate Pension Plan Return?

It is important to strategically plan your retirement and generate the retirement corpus. As an investor you must also know how to opt for the plan that is best for you, by estimating the offered returns. You can calculate the returns of your pension plans in a simple and easy manner with the help of the online pension calculator. You can easily calculate the return of your pension by entering information related to your savings, your current financial liabilities, your expenditure, monthly expenses, total sum required. Based on this information the online calculator calculates the returns on an estimated basis and you can have an approximate value. For filling the details, firstly, you must split your current monthly expenses in two. Then, you must calculate the expected post-retirement income, in terms of EPS of the pension scheme. Calculate the net income required in retirement, along with the future value of the additional income required during your retirement and the retirement corpus that would be needed at the age of 60. Find out how much fund is accumulated through various instruments like PPF, EPF, bonds, pension plans, etc. Based on that, calculate how much your current retirement corpus will grow out to be. Later, calculate the additional corpus required for retirement. Also calculate how much saving is required per month for meeting the additional corpus requirement. Lastly, add up the on-going investments to know how much more is required to invest.

Who should buy a Pension Scheme Plan?

Pension plan is helpful for anyone who is willing to lead a comfortable post-retirement life, would require to save up and plan for it well in advance. Having financial self-sufficiency post-retirement is a great boon. Due to the tight schedule and constraints of work life, you might not have been able to fully realize your dreams, passions, and hobbies. In such a case, you are most likely to put those dreams into the backseat until retirement and pursue them successfully then. Retirement plans and schemes are the best for you if you want to live your post-retirement life without any financial burden and live it to the fullest. These schemes are also most suitable for you if you live in a nuclear family. Moreover, if you are someone who wants lifelong security even after retirement, and want to live according to the quality of life that you expected by working all your life, then having a retirement plan/scheme is a must. It will not only help you relieve financial stress, but also fulfil your biggest dreams, liabilities, and responsibilities out of the savings and fund collected from your lifelong earnings.

How to choose Best Pension Scheme?

Choosing the right retirement plan for your future needs is the most crucial part of finalizing your best retirement plan. In order to know what plan suits you best, there are certain factors to be considered and steps to be followed. They are as mentioned below:

  • Consider the following factors:
    • Your current age
    • Your current income
    • Amount of income you wish to receive post-retirement
    • Maximum amount of premium you can afford to pay
    • The period for which you will pay the premium
  • Do an in-depth research of the available plan options.
  • Understand the product thoroughly and make an informed decision.
  • Do not choose a product only for the tax benefits.

Mentioned below are the documents required for the pension scheme process:

  • Proof of age like PAN card, driving license, passport, etc.
  • Proof of identity like Aadhar card, passport, voter ID, driving license, etc.
  • Proof of address like Aadhar card, driving license, passport, etc.
  • Proof of income like salary slips
  • Passport size photograph

Disclaimer:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale

Retirement Insurance Frequently Asked Questions (FAQs)

What is Pension Scheme Plan?

Pension scheme plan is the investment plan that allows you to plan and save your finances in such a manner that you can achieve your present as well as future financial goals. For this, you must be able to estimate the future cash flow.

Annuity is the regular payouts that the investors receive in a pension plan post retirement. The annuity can be availed by the investor on a monthly, quarterly, half-yearly, or yearly basis.

Financial stability of yourself as well as your dependents, achievement of financial goals, making wiser investments, living comfortable post-retirement life, covering medical and other emergencies without any stress, etc. are some of the major benefits of pension planning scheme.