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How to choose the best pension plan in India?

Deepti Lad Deepti Lad 29 January 2018

Roti, Kapda, Makan and thoughtfully “Pension” is all what we need as a common man. Let’s find how we can choose a pension plan for a financially secured future and old age.

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“Not having to worry about money is almost like not having to worry about dying”. - Mario Puzo (Famous American writer and screenwriter. Movies like Superman, Godfather and many more to his credit.)

The thought of not having saved anything for my future, shakes me to the core. Looking at people around me, it feels like I haven’t done much to secure and save something for my old age. Common man is the worst to get effected with inflation and disturbance in the economy. And me as the part of “aam janta” have seen and heard about pension plans through parents, relatives or at our workplace.

What are pension plans?

In simple words pension plans are retirement plans which requires the employee and employer to contribute some amount of funds. These funds are set aside for the worker’s benefit. This contributed fund is later given to the employee on retirement.

There are few pension plans where an employee can voluntarily opt to invest a part of his current salary which will eventually help him and his family members at the time of his retirement.**

Pension plans are most commonly used plans. In India there are three components to the Indian pension system. Namely, Civil servants pension, the mandatory pension programs run by the employee’s Provident Fund Organization of India and the unorganized sector pension called the National Social Assistance Programme (NSAP).

Why opt for pension plan?

  • Rise in Life expectancy rate: The life expectancy recorded in the year 2017 in India was 68.78 years as per the World Bank. The life expectancy rate has increased by 10 years almost in the past 20 years. Higher the life expectancy, higher will be the amount needed at the time of old age or post retirement.

  • Lack of Social Security System in India: Unlike other countries, India lacks a social security (Social security means, measures taken by the Indian Government or the governing body. These measures are typically taken to provide income to the individual or his family when all sources are disrupted). India lacks in schemes and programmes which will look after the benefit of the disabled as well as retirements etc.

  • Rising health costs & inflation: With rise in the life expectancy of people in the country, there has been a tremendous rise in the health cost. Medications, hospitalization prices are just soaring day by day. Inflation affects our economy badly. So much so that the cost of the daily goods and services have increased over a period of time. Having a pension scheme will definitely ease some tension and provide a financial security in your post retirement phase

  • Regular flow of income: A pension or a retirement plan assures you a flow of regular income after your retirement. You may then be able to lead a comfortable as well as a relaxed lifestyle. Certain traditional plans offer you bonuses too.

  • Tax benefits: It is always advisable to buy a pension plan at an early age. Doing so will also give you tax benefits under the provisions made by the Section 80C of the Income Tax Act.

Why pension plans offer the best retirement solutions?

You can plan logically and strategically and organize cash flow for your post-retirement.

  1. Pension Plans are meant for retirement planning.
  2. Backed by Government
  3. Money accumulated is meant to be used in post-retirement.
  4. In other plans, you can utilize the total accumulated capital, however, in a pension plan, minimum 1/3rd of the total is compulsorily to be utilized for retirement.

Now that we are aware of the importance of a pension plan, the next crucial question arises, “How to choose the best pension plan in India?’’ Let’s find out how?

Below are the most commonly used pension plans in India. In order to choose the most efficient one, it is important that you know the different plans in the market and choose the one as per your requirement.

Immediate Annuity: In this plan one has to invest a lump-sum amount and the pension payments will start immediately.

Deferred annuity plans: These plans let you accumulate a large amount through regular or single premiums over the terms of the policy. The pension will begin once the accumulation period of the policy term is over. This type of plan also has a tax benefit to it

Plans with and without life cover: With life cover: The ones with life cover have a life component in it. In case of death under such plan, a lump sum amount is paid to the family members. Without life cover: This implies that there is no life cover and only the premiums paid or amount invested is returned to the nominees. The money returned may or may not be with interest.

National pension scheme (NPS): In this scheme, one can save for the retirement by investing in equity and debt market as per their preference. 60% of the amount can be withdrawn at the time of maturity and 40% must be used to purchase an annuity plan.

Below is the list of top five pension plans available in India today.

1. LIC Jeevan Akshay 6 plan

This is an immediate annuity plan, which can be bought by paying a lump sum amount and the payouts start immediately. Benefits of this plan are:

  • Pension can be received monthly, yearly, quarterly, and half yearly.
  • No medical examination is needed
  • Premium is exempted from tax

2. LIC Jeevan Nidhi Plan

This is a with profit deferred annuity plan. The policyholder’s accumulated amount (i.e. Sum Assured + Guaranteed Additions + Bonuses) is used to generate a pension (annuity) for the policyholder.

Benefits of this plan are:

  • Premiums are exempted under the section 80C of the Income Tax Act up to Rs.1.5 lakh.
  • No maximum limit for the basic sum assured.
  • Guaranteed Additions @ Rs.50/- per thousand Sum assured for each completed year, for the first five years.

3. HDFC Life guaranteed pension plan

This pension plan can be taken only on single life basis.

Benefits of this plan are:

  • Tax benefit under section 80C of the Income Tax Act.
  • Assured Death Benefit of the total premiums paid till date are accumulated at a guaranteed rate of 6% per annum and are compounded annually

4. ICICI Pru – Easy Retirement

A policy holder can receive regular income on his retirement by investing in Equity. This plan provides a guarantee on the money invested along with growth by investing in a mix of equity and debt, thus helping in protection against the rapid changes in the market.

Benefits of this plan are:

  • Pension can be received monthly, yearly, quarterly, and half yearly
  • Minimum premium of Rs.48,000 per annum with no maximum limit
  • Policy term ranges from 10- 30 years

5. SBI Life Saral Pension plan

This is a pension product. Benefits by way of surrender, complete withdrawal or maturity/vesting will be available in the form of annuities except to the extent of commutation of such benefits as allowed under the Income Tax Rules'.

Benefits of this plan are:

  • Guaranteed bonuses for the first 5 years
  • Minimum Sum Assured of Rs.1lakh with no maximum limit
  • Minimum maturity age of 40 years and maximum of 70 years

Hence without wasting time and hesitating, invest in a pension plan for a better tomorrow.

Recommended Read: All About Different Types of Pension Plans in India

Deepti Lad
Written by Deepti Lad
Deepti, a vivid nature lover, would want to explore all the scenic parts of the world.