What Types Of Pension Plans In India?
To fulfill the insurance needs of every person, there are numerous Pension Plans in India on the market. Each plan has unique advantages. These pension plans have been divided into the following 8 categories:
Deferred Annuity
A Deferred Annuity is a type of annuity contract in which the annuity payments are deferred until a later date. In other words, the annuitant makes regular contributions or a lump sum payment to the annuity, but the payments do not begin immediately.
Instead, the accumulated funds grow tax-deferred until the annuitant decides to start receiving payments.Deferred annuities are often used as a retirement savings tool, allowing individuals to accumulate funds over some time and then receive a stream of income during retirement.
Deferred annuities can be either fixed or variable, with fixed annuities offering a guaranteed rate of return, while variable annuities offer the potential for higher returns but also come with greater investment risk.
Deferred annuities can provide a variety of benefits, including tax-deferred growth, guaranteed income in retirement, and protection against market volatility.However, it is important to carefully consider the fees, charges, and terms of the annuity contract before investing in a deferred annuity.
Types of Deferred Annuity
There are four Deferred Annuity pension schemes:
- Annuity Fixed Deferred: A fixed rate of return will be offered by the amount in your account, just like with a cash deposit. The bare minimum is decided in advance. The interest is postponed as long as you do not withdraw any money.
- Variable Deferred Annuity: The money deposited in this pension plan is placed in an investment account and distributed according to risk tolerance, age, and other criteria. Here, your options are constrained, and the return also varies depending on the assets in your portfolio. Until you remove it, the interest is tax-deferred.
- Indexed Deferred Annuity: An equity-indexed annuity is another name for an index deferred annuity. Both fixed and variable annuities are combined in it. For certain investors, it is a viable alternative because it, like fixed annuities, guarantees a minimum return. Surrender fees apply to withdrawals made in the first few years of the policy's term.
- Longevity Annuity: One of the best pension plans one might choose is a longevity annuity. It is more akin to life insurance that continues to pay after your death. In the event of the insured's passing, it automatically transfers to the designated beneficiary. Taxes on longevity pensions are postponed until the age of 85.
Features of Deferred Annuity
- By making one-time or recurring premium payments, a sizable corpus can be accumulated.
- The matured money is handed to the seeker once the insurance period expires. One of the main advantages is that you receive a tax exemption.
- Only one-third of the corpus in a deferred annuity pension plan is tax-free; the remaining two-thirds are taxable.
- No partial withdrawals are permitted, regardless of emergencies.
- This strategy works well for those who have a sizeable sum of money or who can invest consistently over time.
Immediate Annuity
An Immediate Annuity is a type of annuity contract in which the annuitant makes a lump sum payment to an insurance company in exchange for a guaranteed stream of income that begins immediately or within a short period, typically one year.
Immediate annuities are often used as a retirement income tool, providing a reliable source of income during retirement.The payments from an immediate annuity can be fixed, meaning they remain the same throughout the annuity term, or they can be variable, meaning they fluctuate based on the performance of the underlying investments.
Immediate annuities can provide several benefits, including guaranteed income for life, protection against market volatility, and tax-deferred growth on the investment. However, it is important to carefully consider the fees, charges, and terms of the annuity contract before investing in an immediate annuity.
Additionally, once the annuitant begins receiving payments, they cannot change the terms of the annuity contract or access the lump sum payment that was used to purchase the annuity.
Features of Immediate Annuity
It is the simplest type of pension plan which is a non-participating and non-linked plan.
- You can pay a lump sum amount in one go; a pension will start immediately according to the premium paid. It will only stop when you die. In the case of the Joint life option, the pension will be received by the spouse in the absence of the policyholder and it will only stop when he/she dies.
- You will start receiving the benefits the moment the insurance provider receives a lump-sum premium.
- You can choose from a range of annuity options. You can opt for a joint life option to cover your spouse.
- The pension received under this scheme is tax-free up to an amount of Rs.1.5 lac under section 80CC of the Income tax act, 1961.
- This pension plan cannot be reversed so explore your options before investing in such a plan.
- There is no scope for any withdrawal if you have any financial emergency.
Annuity Certain
It is a type of annuity contract in which the annuitant receives a guaranteed stream of income for a fixed period, typically between 5 and 30 years. Unlike other types of annuities, the payments from an annuity are not contingent on the annuitant's life expectancy or survival. Instead, the payments are made for the duration of the fixed term, regardless of whether the annuitant is alive or deceased.
Annuity contracts can be either fixed or variable, with fixed annuities offering a guaranteed rate of return, while variable annuities offer the potential for higher returns but also come with greater investment risk.Annuity-certain contracts can provide several benefits, including a guaranteed stream of income for a fixed period, protection against market volatility, and tax-deferred growth on the investment.
However, it is important to carefully consider the fees, charges, and terms of the annuity contract before investing in an annuity, as the fixed term may limit flexibility and the payments may not keep pace with inflation.
Pension plans with and without coverage
The pension plan with coverage has a life insurance component connected, and the policy. An annuity known as a "guaranteed period" is offered to the insured for a set amount of time, such as five years, ten years, fifteen years, or twenty years. The issue at hand is not the policyholder's ability to survive.
Life Annuity
The seeker will receive a monthly payment until he passes away.
The pension amount will be distributed to the spouse up until their death if you select the "with the spouse" option.
The National Pension Plan
- This program was put in place by the Indian government in 2003 to protect retirees' interests.
- The money is divided between equity and debt funds according to the insured's preferences.
- Up to 60% of the corpus may be withdrawn by the policyholder, with the remaining 40% being utilized to buy an annuity.
- Taxes must be paid on the amount withdrawn at maturity.
Whole Life ULIPS
- In keeping with the name, the money is kept invested in this pension plan for the duration of the insured person's life.
- These pension schemes are long-term ones. Those with the patience to see their money grow by double overtime frequently chooses these unit-linked plans.
- Unlike previous pension plans, which were invested in bonds and government securities, the new ULIP pension plans participate in the equity markets.
- Compared to investors searching for more stable assets, this sort of pension plan is more suitable for risk-taking investors.
- The amount up to Rs. 1.5 lakhs under this pension plan is tax-free, just like under any other plan, and the amount above that is taxable.
