scorecardresearchRetirement Planning: Unsure about pension plans? Here are the features

Retirement Planning: Unsure about pension plans? Here are the features and benefits

Updated: 01 Dec 2022, 10:30 AM IST

Securing finances for your future is extremely important. What better way to secure your loved ones’ future than to ensure them a regular income to take care of their expenses?

Include pension plans in your investment portfolio even if you have bought term insurance.

Include pension plans in your investment portfolio even if you have bought term insurance.

When it comes to planning for retirement, not many people are aware of investment options beyond the usuals such as the National Pension Scheme (NPS) or the government-sponsored defined contribution schemes. Are these retirement pension benefit funds enough to secure your old age at a time when you have no access to regular income? Also, elderly people have to shell out more towards their unforeseen medical expenses, thus, hampering the entire retirement planning process. To provide a cushion, pension plans may help. Here's how:

Pension plans

Catered to meet post-retirement financial needs while ensuring enough security for one in the future, pension plans are actually retirement plans to systematically save money to generate wealth for your future. Insurance companies disburse pensions at a particular rate on the accumulated money, thus, helping pensioners meet their daily living expenses and pay for untoward medical emergencies after they have retired.

Types of pension plans

You plan your finances depending not only on your future needs but also on your current financial situation. There are pension plans suited to all kinds of professionals, whether they are salaried, businessmen or those living on freelancing gigs. The commonly available pension plans include:

  • Deferred annuity plans: You can either put in a single premium amount or accumulate your corpus through regular payments over the policy period. Post the completion of the policy term, you will start receiving your regular pensions. However, you cannot withdraw the entire corpus accumulated in one go within the policy period. Once the policy tenure is over, you can opt for tax-free withdrawal of one-third of the corpus while the remaining two-thirds of the corpus amount would be taxed under the then Income Tax regulations.
  • Immediate annuity plans: You can opt for immediate pension retrieval too. You pay a lump sum amount to the insurance company. Based on the amount you put in, the company starts paying you an annuity. You can however choose from the range of annuity pension plan options available with these plans.
  • Pension plans with life cover: What if you have a nominee dependent on your income? The annuity that you receive in your post-retirement phase may pay for the expenses during the later years of your life though the money may not suffice your nominee’s expenses. The attached life cover benefit ensures that the beneficiary receives the insurance benefits to survive the remaining years of his or her life.
  • Guaranteed period annuity plans: This is more like a guaranteed pension for an entire life. Here the pension beneficiary continues to receive for a lifetime in multiples of five, say five, 10, 15 or 20 years. The best part is that your nominee continues to receive the pension amount, thus, taking care of his or her lifelong expenses.
  • Annuity certain plans: As the name suggests, the annuity received from these plans will take care of your needs only up to a certain period say till you turn 60 or 70 years old. Post that, your nominee continues to receive a lifelong pension till the end of the policy period.
  • Life annuity plans: You can either take this plan for yourself or jointly with your spouse. You pay towards the plan till you retire, post which the plan takes care of you through regular annuities. If you choose this option with your spouse, the insurance company continues to pay your pension to him or her post your demise. This way, you can financially secure your partner’s future by creating the much-needed financial cushion that will take care of your partner’s money needs in your absence.

Having a pension plan helps even if you may be paying towards other retirement plans too. Many personal finance analysts advise that people must include pension plans in their investment portfolios even after buying a term insurance policy amount as the regular annuity amount helps to take care of loved ones’ daily expenses in the event of their untimely death.

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First Published: 01 Dec 2022, 10:30 AM IST