Retirement Plans (Pension Plans/Policy)

Financial resources are a huge and crucial part of everyone’s life, whether you are young or not. And money becomes even more important when you have turned old and are unable to put in more labour as you were putting in when you were young.... Before you reach that stage in your life when you have worked enough and want to live a relaxed life, invest in a pension plan which can fulfil all your needs post-retirement. Retirement planning is a multi-step process in which each level is planned according to the requirement of financial resources and the pension plan fulfils all your needs. It is a type of plan in which you can set aside your financial resources and make a saving. Read more

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A pension plan will protect you from all the uncertainties post-retirement. Live life king-size even after retirement. The pension plan will help you build a protection layer around you, making it all the more crucial. The policyholder pays in a fixed amount till the time he retires and post-retirement he receives a pension or annuity at regular intervals of time. As you all know, emergencies can come at any point in your life and your savings vanish in the blink of an eye. So choosing the best pension plan that suits your needs and fulfils your expectations is necessary. Not only this policy will save your future but it will help you deal with any circumstances. Choose a plan which will act like a guard for the second innings of your life.

There are so many pension plans available in the market to meet the requirement of each one of us. Each plan comes with its own benefits. These pension plans have been classified into 8 categories which are as follows:

Deferred Annuity

  • A big corpus is accumulated by paying premiums at regular intervals or by paying a one-time premium.

  • As the policy term gets over, the matured amount is given to the seeker. You get a tax exemption as one of the major benefits.

  • In a deferred annuity pension plan, only one-third corpus is tax-free and the rest two-thirds is taxable.

  • Any partial withdrawals are not allowed irrespective of the emergencies.

  • This plan works best for all those having a chunk of money or who can invest systematically over the years.

  • There are four types of deferred annuity pension plans available.

  • Fixed Deferred Annuity:- Just like a cash deposit, a fixed rate of return will be provided according to the amount present in your account. The minimum amount is fixed in advance. The interest gets deferred till the time you do not make a withdrawal.

  • Variable Deferred Annuity:- The funds invested in this pension plan are put in an investment account and are allocated based on factors like risk-bearing capacity, age, etc. Here you have a limited choice as well as the return is also variable according to the assets present in the portfolio. The interest remains tax-deferred till the time you withdraw it.

  • Indexed Deferred annuity:- Also known as an equity-indexed annuity. It is a combination of fixed and variable annuities. It is a feasible option for some investors as it guarantees a minimum return just like fixed annuities. Withdrawals during the first few years of the policy term are subject to surrender charges.

  • Longevity annuity:- One of the best pension plans that one could prefer. It is more like life insurance which pays you till you die. It automatically passes to the authorized beneficiary in case of the demise of the insured. Till the age of 85 years, the taxes are deferred on longevity annuities.

Immediate Annuity:-

  • It is the simplest type of pension plan which is the 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 like 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:-

  • As the name says, the annuitant is paid the annuity for a specific number of years.

  • In a situation where the policyholder dies before receiving the whole amount, it automatically passes to the nominee.

With Cover and without cover pension plans:-

  • Looking at the pension plan with cover, it has a life insurance component attached to it, the policy

Guaranteed Period annuity:-

  • As the name suggests, the annuity is provided to the insured for a certain fixed period of time like 5 years, 10 years, 15 years, or 20 years.

  • The survival of the policyholder is not the question of concern here.

Life Annuity:-

  • Am annuity amount will be given to the seeker till he dies.

  • If you choose the option of “with the spouse” the pension amount will be given to the spouse till his/her demise.

National Pension Scheme:-

  • The Government of India introduced this scheme in 2003 to safeguard the interests of employees once they retire.

  • As per the choices made by the insured, the funds are allocated in equity and debt funds respectively.

  • The policyholder can withdraw up to 60% from the corpus and 40% is used to purchase the annuity.

  • The amount withdrawn at the time of maturity is taxable.

Whole Life ULIPS:-

  • Going with the title, the amount remains invested for the whole life of the insured in this pension plan

  • These are long term pension plans. These unit-linked plans are often taken by those who have the patience to get their funds doubled with time.

  • The new ULIP pension plans invest in equity markets as compared to those traditional plans that were vested in government securities and bonds.

  • This type of pension plan is more for risk-taking investors in comparison to people who are looking for more stable investments.

  • Just like any other plan, under this pension plan also, an amount up to Rs1.5 lakhs is tax-free and over that it is taxable.

Defined Benefits:-

  • This is an employer/sponsor-based pension plan that promises a specified payment or lump sum or a combination of two to the insured.

  • In this case, it is not the employee who takes care of the investment risk or planning, everything is done by the employer.

  • The amount depends upon the earnings of the employee, his tenure of service, and his age.

  • A partial withdrawal is not allowed but the person can enjoy the defined benefit with an annuity or lump-sum amount received at retirement.

  • Upon retirement, the benefits can be shared as fixed monthly income or as lump sum.

  • If the insured passes away, the benefits are transferred to the spouse.

Defined Contribution:-

  • In layman's terms, in this pension plan, an equal amount is contributed by the employer and the employee or a fixed amount is deducted from the paycheck of the employee and the same amount is put in by the employer.

  • Here the participation of both employer and employee is voluntary. Anyone of them can refuse to put in the share.

  • There is no guarantee of income after retirement.

In today’s age, people start planning for their retirement as and when they plan for other things in their life. There are so many options available to choose from that you have to have a clear vision for your life. So before choosing any of the above-mentioned pension plans, you should ensure that the plan has the following features:

Annuity:-

  • The most important feature that should be looked upon while opting for a pension plan.

  • There are two types of annuities offered by insurance companies: immediate annuity and deferred annuity.

  • As discussed in the earlier section, in the case of an immediate annuity, the insurance provider pays an amount just after receiving a lump-sum premium. Also, one can pay a single premium in this pension plan.

  • On the other hand, in the scenario of a deferred annuity, you will start receiving an amount after a few years of the policy term have passed.

Sum assured:-

  • It is a pre-defined amount that is given to the seeker or his nominee in case of maturity or death.

  • The determination of the sum assured is done in varied ways by different companies.

  • The sum assured is decided by the insurance company depending on your profession, the amount of the premium you pay, the risk-bearing, credit history, etc.

  • In some cases, the sum assured can be 10 times the premium paid and in others, it can be equal to the fund value of the pension plan opted by the seeker.

  • In a situation where there is no sum assured, then it is a pure type of pension plan rather than an insurance plan with a pension as a part.

Vesting Age:-

  • It is a significant factor as it decides when will the seeker will start receiving the pension.

  • In most pension plans that are available on market, the vesting age is between 45-50 years of age.

  • In some cases it starts from 70 years and in some others, it can go up to the age of 90 years.

Accumulation period:-

  • It is a phase in a pension plan when the investor or the policyholder start investing and building the investment portfolio.

  • The policyholders can in one go or a fixed amount at regular intervals.

  • In this process, you create a protective layer and secure your future post-retirement.

  • The accumulation period ends when you start receiving an amount or you start making withdrawals.

Payment Period:-

payment-period

  • As the name indicates, the payment period in any pension plan is the whole phase of receiving the amount post-retirement.

  • For instance, if you receive payment at fixed intervals from the age of 65 years to 80 years, then 15 years is the payment period.

  • Most insurance companies do so, but in some pension plans, the insurance providers start giving a certain amount during the accumulation period also.

Surrender Value:-

  • As you all know, it is a value that you get in case the insured person surrenders his or her policy before the policy term ends.

  • In other words, it is the value that the insurance company offers before the policy is matured if the premium paying term is over.

  • If an insured person surrenders their policy mid-way, he/she will lose all the benefits of the pension plan including the life cover, if provided.

After having a careful look at the features, one should understand the importance of pension plans as it secures your future after retirement also.

  • No one can work always:- Everyone puts in a lot of hard work at a young age and even in middle life, thinking that you can have a relaxed retirement time. You can only have that peace of mind when you are not dependent on anyone for financial resources. This can happen if you carefully plan for it and invest in a pension plan that satisfies all your needs.

  • Rescue you from any medical emergency:- As you inch towards old age, health issues tend to happen easily. Whether it is a smaller one or a bigger one, the pension plan saves you from all those extra medical expenses.

  • Fulfil all your hobbies:- You can always pursue your hobbies irrespective of your age. Sometimes we make compromises during childhood to young age due to responsibilities. But post-retirement, almost all your responsibilities are over and you can concentrate on yourself and fulfil all your bucket lists.

  • Stay Independent:- For all those who work for their entire life, it is very difficult for them to ask for money. The pension plan helps you stay independent in terms of financial resources as it gives you optimism and the power to look out for yourself first, at least once in life.

Without giving it a second thought, just like you are planning for other things in life, start planning for your after-retirement period also. You can find all the necessary information on okbima.com that will help you from buying the policy online to provide you with all the information about the different plans that are best suited for you and cater to all your needs.

FAQ's About Retirement Plans

Although there is no set age for early retirement in India, the age range of 45 to 50 is considered favourable.

People between the ages of 35 and 40 can select the finest retirement plan by considering their specific financial demands. Furthermore, prior to making an investment, full study on investment products and consideration of many relevant items after completing proper objective analysis is required.

The quantity of monthly savings varies depending on the buyer's fundamental financial demands. Financial consultants, on the other hand, recommend that people set aside roughly 15% of their monthly income for retirement.

No! In your absence, you must designate your spouse to receive retirement benefits.

Yes! If you are no longer able to provide for your family, insurance will allow them to live a quiet life free of financial worries.

The vesting age, also known as the vesting date, is the age at which you can start collecting your monthly pension or remove money from the plan.

Yes! It is possible to change the policy nominee at any time.

If you like, you can have the premiums deducted automatically from your savings account. Nonetheless, you can pay your premiums online with your debit card, credit card, or payment wallet.

Yes! All central government retirees are allowed to open a joint account with their spouses by the Indian government.

If you save a considerable portion of your income for retirement, you may not have any problems after you retire. Even if you become handicapped and do not contribute to retirement programmes, your savings will be multiplied by the latter. You can also put money into pension plans established exclusively for persons with disabilities.