Ensure Peace of Mind with a Pension Plan

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Saving for retirement is an essential, yet most of the times ignored financial goal. Many of us don’t pay much heed to retirement planning thinking that it is years away. Furthermore, many salaried employees believe that a part of their income is already going to EPF (Employee Provident Fund) so why purchase a pension plan?

However, depending entirely on EPF’s contribution for earnings after retirement is not a good idea. You must have at least one more back up in the form of a pension plan to keep earning after retirement as the costs of living are only going to rise

Benefits of Pension Plans

Guaranteed Income After Retirement: If you purchase a pension plan you will get a balanced income post-retirement on the basis of your investments. The option of guaranteed income makes you financially independent after your retirement. You can use a retirement calculator to calculate the amount of money you will need post-retirement.

Tax Deductions: Any contributions made towards a pension plan are exempted from taxes up to Rs. 1.5 lakh annually, under Section 80CCC. Furthermore, death benefits received under this plan are also exempted from taxes under Section 10(10D). The withdrawals, however, are not tax-free. 

Investment Options: Pension plans provide investors with an opportunity to invest their money in debt and equity funds so that they can generate better profits. An investor can go for a fund based on his/her risk appetite and create wealth.

Negates the Inflation Factor: Purchasing a pension plan is a suitable method of neutralising the effects of inflation. The policy provides a lump sum amount post-retirement, this sum is 1/3rd of the sum accumulated, and the remaining is provided in the form of a steady income so that your finances can keep up with your lifestyle.

Types of Pension Plans

Deferred Annuity: Under deferred annuity scheme, you can accumulate a corpus by paying regular premiums or a single premium throughout a policy term. When the policy matures, the total sum assured, and the bonus is paid provided that it is not lower than 101% of the total paid premiums. One good example of a deferred annuity plan is the guaranteed pension plan. This plan allows the option of customising the policy according to the preference of the policyholders.

Immediate Annuity: Under immediate annuity scheme, you have to deposit a lump sum amount, and the pension starts immediately. There is a variety of options that are available under this plan like, Life Annuity and Guaranteed Period Annuity. Moreover, leading insurers like Future Generali also offer an option to choose between ‘Life Annuity’ and ‘Life Annuity with return of Purchase Price (a single premium amount invested for receiving a lifelong annuity). So that even in case of demise of the policyholder, the purchase price is paid to the nominee.

Tips to Choose the Correct Pension Plan

Check your current finances and adequately evaluate them to choose your investment amount

Get an idea on the returns that you will receive after retirement from the pension plan

Carefully go through the additional benefits of the pension plan you are buying

Find out the lock-in period of the policy

See if there are any tax exemptions on the interest or dividend that you will receive from the pension plan

Choose a plan that offers you the flexibility of choosing your investments

Concluding

It is always good to have a clear idea of the future to plan for your financial independence post-retirement. The way you plan for your children’s education, marriage and future life, it is also essential to think about your future.

By doing so, you will make sure that you are not dependent on anyone for your expenses later in life. Good pension plans will help you to stand on your own feet, even at an old age! Work with dignity, relax with dignity!