Pension plans are also known as retirement plans. By investing in a pension plan, one can build a secure and safe future post-retirement and live an independent life on the savings.
Through these plans, you can invest a part of your salary for a specific time interval. That invested part will help you in providing an income source after your retirement. If you are earning a good salary and also save some part of it, even then you must invest in a pension plan. Your savings may get utilized in case of any emergency. These plans will always be there for your secure future.
If you attempt to save funds on our own, they might get exhausted very easily. Thus, you need the best pension plan for getting funds at regular intervals of time and make your savings last longer. Pension plans provide you with a fixed amount of money at regular intervals which not only secures your future but also helps you deal with any post-retirement uncertainties.
Pension Plan Features
There are many attractive features when it comes to a pension plan:
- The insurance companies always have a sum assured or a pre-defined amount that is offered to the insured individual. These also include maturity and death benefits. This assured sum differs from one company to another, while some companies offer even 10 times the premium amount, others offer a sum equal to the fund value of the chosen policy. In case of a pure pension plan, no sum is assured.
- Insurance companies have 2 kinds of annuity – immediate annuity and deferred annuity. An immediate annuity is, as obvious, immediate. The insurance companies start with the plan immediately after receiving the premium. In case of an immediate annuity, you have the option of paying the premium lump sum, which is used by the company to build a stable financial corpus for you.
When it comes to a deferred annuity, you have the option to choose when you want to start receiving the payments. It starts after a few years, as its name suggests. So make sure you consider the annuity offered while looking for an insurance company.
- Another feature is the accumulation period, which means the period during which you ‘accumulate’ or invest your money, whether periodically or lump sum. While most insurance companies start paying after the accumulation period ends, some allow you to withdraw lump sum even during the accumulation period.
- The Payment period is the period in which the insured individual receives the insurance amount. This period usually starts after the accumulation period ends.
- The Vestige age refers to the age of the insured after which he/she starts receiving the pension amount every month. While most of the people choose to start receiving this amount from the age of 50 years, most insurance companies keep the option open of up till 70 years, and some even allow it until 90 years.
- If the insured individual has already paid the premium, he/she has the option to ‘surrender’ the plan before it matures, for which the banks will pay the investors a surrender value. However, the insured will not be eligible to avail of any benefits or death covers.
- All pension and insurance plans also have a minimum-return policy, which states the minimum value that the investor is bound to receive after the maturity of the plan. As stated by the Insurance Regulatory and Development Authority of India (IRDAI), every plan has to have ‘on zero returns’ i.e. a minimum of 1 percent of the premiums paid by the investor as the minimum-return amount. So, while comparing plans, make sure you consider this critical aspect.
Pension Plan: Factors to Consider While Choosing
These are some of the factors that you should consider while choosing a pension plan for yourself.
- Your Expenses – First and foremost, choose a pension plan while taking your monthly expenses into consideration, so as to not affect your expenses drastically. If you have a huge family with many expenses, make sure the plan you choose is able to build a financial corpus that is big enough to carry all the expenses. This is important as your pension plan is your main source of income after retirement.
- Life expectancy – Make sure you choose a plan which will be able to support you for as many years as you expect to live and doesn’t run out before that.
- Medical Bills – Old age is an age of uncertainty. While this is a very critical factor to consider, most people still ignore it. It is necessary to choose a plan which will support most of the medical expenses and emergencies.
- Pending Loans – Make sure you repay all your pending loans timely before your pension plan matures and your payment period starts as this will prevent you from losing a major part of your annuity in repayment of loans.
- Possible inflation – Keep in mind the ever-growing prices and continuous inflation. If you choose a pension plan according to the current prices, it might not provide enough returns to support you in the future.
- Research – Don’t go for a plan because someone else was availing of it. Make sure you do proper research on all the aspects of all the plans such as the premium to be paid, and the amount assured etc. This will help you choose a plan tailor-made for you
Even though some people also consider the tax benefits under the Income Tax Act 1961, while availing of a plan, you should always keep this factor as secondary. If you determine your choice only by the tax-benefits a plan offers, you might miss out on some other more beneficial plans with other benefits.
Pension Plan Eligibility Criteria
A pension plan only has some very basic eligibility criteria such as:
- The minimum age to avail of a pension plan is 18 years in some companies, while for some companies it goes up to 30 years. The maximum age to avail of a pension plan is 70 years.
- The minimum vestige age is generally 40 years. However, it might differ.
- There is also a minimum premium payment the investor has to make. This, again, differs from company to company.
Pension Plan Calculator
You can easily compare your pension plan options and choose the best one without any hassle using the Dialabank Pension Calculator. All you have to do is enter some values such as your expenditure, savings, financial liabilities, and the total sum required, and you’ll be good to go.
Pension Plan Types
There are many types of pension plans and these can be classified on the basis of various factors such as:
- Annuity – On the basis of annuity, a pension plan can be classified into five types: –
In the immediate annuity scheme, the insured individual will be eligible to receive the annuity right after he pays the lump sum premium. the amount given will be determined by his premium. In case the insured individual dies before the loan matures, the nominee will be eligible to receive the amount.
In the case of a deferred annuity, the investor will start receiving the payments after a period of time. The persona availing of the policy can make the payment lump sum or in installments. This annuity also offers many benefits including tax exemption for a part of the amount received by the individual. However, the investments in a deferred annuity cannot be withdrawn before the plan matures.
In the case of a certain annuity, the annuity will be received by the investor for a certain number of years. If the insurer passes away before the tenure ends, the amount will be given to the beneficiary of the policy.
In the case of a guaranteed-period annuity, the annuity will be paid to the investor for a specific term chosen by him such as 5 years or 10 years, irrespective of whether he/she survives the period.
Last, under the life annuity scheme, the policy-holder will receive annuity until his/her death. In case the individual chooses the option of ‘with spouse’, the spouse will be eligible to receive the amount after the policy holder’s death.
- Cover – On the basis of cover, a pension plan can be classified into two types – With cover and without cover plans.
Cover plans offer a life cover alongside the annuity. In case of the death of the policyholder, the beneficiary of the policy will receive the lump sum amount. Deferred annuity schemes offer life cover
In the case of no-life cover plans, the beneficiary of the plan will receive the annuity until the date of the death of the insured. Immediate annuity schemes do not offer a life cover.
- Whole-life ULIPs – In this scheme, the money invested by the insured individual can be withdrawn by him/her after retirement and in cases of emergency. This allows the insured to get some tax-free income.
- The National Pension Scheme – This scheme was introduced by the government wherein the money invested by the people availing of the pension scheme was invested in bonds and equities to get returns. 60% of the amount can be withdrawn at retirement while the rest is given as annuity. However, this income is not tax-free.
- Pensions Funds – The pension funds are regulated by the Pension Fund Regulatory and Development Authority (PFRD). These offer better returns upon maturity and secure money for you in case of financial emergencies.
- Defined Benefits – Under this scheme, you are bound to receive a defined benefit that is pre-decided on the basis of the premium paid by you. The advantage of this scheme is that your employer is also bound to contribute to the premium payment. In case of a lack of money, the employer has to pay the difference.
- Defined contributions – Under this scheme, only the contributions or the investments made by you are predefined. Your employer is also bound to contribute to the premium. This amount will be invested in bonds and equities, and the benefits will be decided on the basis of the total premium paid and the returns earned by it.
Pension Plan Advantages
There are many advantages when it comes to a pension plan:
- These plans help you have a continuous income even after retirement so that you can sustain yours as well as your family’s expenses, and avoid any financial crisis.
- These plans prevent you from exhausting all your savings in one go. They help manage your funds so as to secure your post-retirement life.
- These plans offer you many tax benefits under Section 80C of the Income Tax Act 1961 and help you earn a tax-free income.
- Most of these plans offer life covers that help secure the future of your family in case of your unfortunate demise.
- You have the option of a no-risk investment when it comes to these plans. The amount invested by you is invested by the companies in bonds and equities which helps you earn major returns. The companies also shield you from the uncertainties of the market by making up for the loss in case the stock market falls.
- You have the option of receiving the money as you wan it – lump sum or in monthly installments. Some companies allow you to withdraw the amount even before the plan matures in case of financial emergencies.
- In case you want to avail of some more benefits, you can opt for add-ons in your plan.
- In the case of ULIPs, your amount gets invested in bonds and equities and you get returns on it. This helps you enhance your financial corpus.
Pension Plan: A Comparison
|Features||New Age Retirement Products (Whole Life ULIP)||Regular Retirement Product||National Pension Scheme||Public Provident Fund|
|100% tax-free income on retirement for life||yes||no||no||no|
|flexibility in changing income||yes||no||no||no|
|flexibility for withdrawing 100% of the funds||yes, but only after 5 years||no, withdraw up to 33% of the funds at retirement||No, withdraw up to 25% of the funds after 10 years||no, withdraw up to 25% of the funds|
|tax-free fund withdrawal||yes, 100% tax-free fund withdrawal||no, 33% tax-free fund withdrawal upon retirement||no, 60% tax-free fund withdrawal upon retirement||yes, 100% tax-free fund withdrawal|
|the choice to invest in multiple portfolios||yes||no||yes||no|
|tax exemption on the invested amount (Section 80)||yes, up to 1.5 lakhs||yes, up to 1.5 lakhs||yes, up to 1.5 lakhs and up to 50,000 under Section 80 CCD (1B)||yes, up to 1.5 lakhs|
Pension Plan: Best Offers
These are the top 10 offers you can avail of:
- HDFC CLife Click 2 Retire Plan is a ULIP. It invests the premium paid by the insured into bonds and equities and pays the returns to the individual. Death benefits are provided, which are about 105% of the premiums paid. Tax benefits are also offered. The minimum entry age is 18 years and the maximum age is 65 years.
- The HDFC Life Assured Pension Plan is another ULIP with guaranteed returns. It offers Loyalty additions every 11 years. The entry age can range from 18 to 45 years. It offers tax as well as death benefits.
- LIC Jeevan Akshay 6 Policy Plan is an immediate annuity plan. The minimum age for this plan is 35 years and the maximum age is 80 years. You don’t need to go through a medical exam to avail of this plan. The annuity can be received monthly, quarterly, half-yearly, or yearly.
- The LIC Jeevan Nidhi Plan which provides tax exemptions and the policyholder is bound to receive Rs. 50000. The minimum sum assured is Rs. 1 lakh in regular premium and Rs. 1.5 lakhs in single premium payments. The minimum vesting age is 55 years and the maximum is 65 years.
- The SBI Life Saral Pension Plan again offers investment returns while at the same time protects the investor from the instabilities of the market. It offers bonuses which amount to 2.5% of the sum assured in the first years and 2.75% in the next 2 years. The minimum premium payment is Rs. 7500 while the minimum sum assured is Rs. 1 lakh. The entry age can range from 18 to 65 years.
- The Private Pru – Easy Retirement generates long term returns and tax benefits. The entry age is a minimum of 35 years and a maximum of 70 years. The minimum premium is Rs. 48000.
- The Birla Sun Life Empower Pension is again a ULIP. You can choose your premium amount, and choose your risk profile. The minimum entry age is 25 years and the maximum is 70 years.
- The Max Life Guaranteed Lifetime Income Plan offers you and your spouse life-long payments. You can choose from 4 annuity options, various premium payment options as well as options on how you want to receive your pension.
- The Bajaj Allianz Pension Guarantee provides you with 6 annuity options, with a minimum annuity of Rs. 12000 per year. You can even extend the annuity option to your spouse. The entry age can range from 37 to 80 years.
- The Reliance Smart Pension, which is a ULIP and guarantees capital as well as the double benefit of equity participation. It also offers guaranteed loyalty additions and income tax benefits. The vesting age ranges from 45 to 75 years.
Some more offers:
|pension plans||Policy Term||Entry Age||Vesting age||Annual Premium Amount||Sum Assured|
|Aaditya Birla Sunlife Empower Pension Plan||5 years to 30 years||25 years to 70 years||80 years||Rs. 18000||NA|
|Aegon Life Guaranteed Income Advantage Plan||85 years – entry age||20 years to 55 years||85 years||Depends on coverage, age, term, and premium payment tenure||Minimum Rs. 1 lakh|
|Aviva Next Innings Pension Plan||13, 16 or 18 years||42 years to 60 years||NA||Limited pay – Rs. 50000, single pay – Rs. 1.5 lakhs||NA|
|Bajaj Life Long Goal Pension Plan||99 – entry age of the life assured||Life assured – 0 years to 65 years, policyholder – 18 years to no limit||99 years||Minimum Rs. 60000||NA|
|DHFL Pramerica Golden Age Plus||15, 20, 25 years||18 years to 40, 45, 50 years||NA||Rs. 10800.||Minimum – Rs. 1.5 lakhs, maximum – Rs. 5 crores|
|Exide Life Golden Years Retirement Plan||10 years to 42 years||18 years to 65 years||55 to 75 years||Rs. 24000||NA|
|Private Pur Easy Retirement Plan||10 years to 30 years||35 years to 75 years||45 to 80 years||Rs. 48000||NA|
|India First Annuity Plan||NA||40 years to 80 years||NA||Rs. 50000||NA|
|Kotak Premier Pension Plan||10/15/17 years to 30 years||35 years to 50/60 years||45 to 70 years||Depends on coverage, age, term, and premium payment tenure||Minimum – Rs. 2 lakh, maximum – no limit|
|Max Life Forever Young Pension Plan||10 years to 75 years||30 years to 65 years||50 to 75 years||Regular pay – Rs. 25000, single pay – Rs. 1 lakh||NA|
Pension Plan: FAQs
✅ What does a pension plan mean?
A pension plan manages and saves your funds for your entire lifetime. You can pay a premium over the years. This premium is sometimes invested in various bonds and equities. The returns are paid back to you in installments or lump sum after retirement. Some of these policies also provide other benefits such as life covers which are paid to the beneficiary of the policy in case the insured individual dies.
✅ What is an annuity?
An annuity is an amount that the insurance company pays you back when the plan matures. This can either be immediate and lump sum or deferred and in installments.
✅ What are the benefits of a pension plan?
A pension plan secures your future. It helps build a financial corpus for you and manages your savings so that they wouldn’t get exhausted easily and you can deal with any post-retirement financial crisis. They also give you the option of earning a partially tax-free income.
✅ Is there any eligibility criterion for a pension plan?
The only eligibility criteria for pension plans are age criteria and the minimum premium payment criteria which differ from one plan to another.
✅ What are the tax benefits on a pension plan?
Pension plans allow you to earn a tax-free income after retirement. 1/3rd amount of the pension plan is tax-exempted and is paid lump sum, while the rest is taxable and is paid in installments. These tax benefits are given to you under Section 80C of the Income Tax Act, 1961.
✅ How can the Dialabank pension calculator help me?
The Dialabank pension calculator saves you from any hassle of calculating the retirement corpus of a plan yourself. All you have to do is enter some value and the calculator will do it for you. This way you can easily compare plans and choose what’s best for you.
✅ What is the difference between a term plan and a pension plan?
While a term plan only helps secure the financial future of your family in case of your demise, a pension plan helps secure your post-retirement phase too along with life cover. Unlike a pension plan, the maturity amount of a term plan is paid lump sum and is entirely tax-free.