5 Tips for Choosing a Personal Pension

Besides, life expectancy has increased due to modern medicines and scientific advancements. This means if you retire at 60, you will have to save a larger corpus for a comfortable living for the next 20 to 30 years. Numerous retirement plans in the market offer insurance and investment. First, understand the workings of the retirement plans.A retirement plan begins with the accumulation period, which involves premium payment for retirement investment. Then begins the vestige age when you receive a personal pension from your total investment. The personal pension received during your retirement defines the annuity phase. Here are five tips for choosing a personal pension:

Traditional retirement plans come with or without life cover. For plans with life cover, the policy nominee is paid the lump sum amount on the death of the policyholder. With retirement plans having no cover, the investment amount with or without interest will be given back to the policy nominee.Look for an immediate annuity or deferred annuity in retirement plans. In case of an immediate annuity, you can pay a lump sum amount instead of periodic premiums, and gain person pension immediately. Whereas in a deferred annuity, you follow a periodic payment of premiums during the accumulation period, and you will start receiving a monthly pension at the end of the accumulation period.Besides, you can opt for a lifetime annuity option that assures annuity for a specific period regardless of the policyholder’s survival. In case of the joint-life or last survivor annuity, you receive personal pension till you are alive, and after your death, the pension is given to your spouse.

Choose pension plans with a higher sum assured and additional benefits like a loyalty bonus. Some plans offer participation benefits wherein the policyholder enjoys a share of the insurance company’s profits.

In case you surrender your policy before the vestige age, you will incur surrender charges. While choosing a retirement plan, compare the surrender charges and other hidden expenses that would affect your personal pension.Apart from this, decide the age when you want to retire and set the vestige age of your retirement plan accordingly. Numerous plans offer vestige age of 85 years while others cater to the early retirement trend by providing a vestige age of 40 years.Also, look for pension plans that give the flexibility to increase the premium through top-up contribution and thus allow you to generate a larger corpus at the end of the accumulation period. Research on plans that offer total reimbursement of premiums on the death of the policyholder.

Unit Linked Insurance Plans (ULIPs) serve a dual purpose: life protection and investment in equities. The investment is segregated into two parts to serve both the purposes. ULIP offers investment in debt, equities or a mix of both. And it also provides the flexibility to switch between funds at your discretion. The market-linked investment ensures better returns at policy maturity.

National pension scheme (NPS) is a government-backed investment scheme for public, private and government sector employees. In this scheme, you invest periodically during your employment years. On retirement, you can withdraw a certain amount of the corpus while the remaining is offered as a monthly retirement pension. If you are looking for a low-risk investment with a guaranteed pension in your retired life, NPS is a perfect choice.To conclude, your retired life should be free of financial stress. And a wise retirement planning will help you cherish your golden years.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.