As pension plans can play a significant role in your retirement planning, it is essential to know as much about them as possible.
Here is a list of 5 essential features of a pension plan that you should know about-
Guaranteed Monthly IncomeMost of the pension plans are of the nature that you get to receive a fixed income after retirement. There are also immediate annuity plans which allow you to receive monthly or annual income as soon as you invest.Depending on the type of plan you select, the pension can either be paid until death or up to a fixed duration.
High Vesting AgeThe vesting age of a pension plan is the age when the investor starts receiving a monthly pension. The minimum vesting age in most plans is between 40 and 50 years, and the maximum is generally up to 70 years.Between the minimum and maximum limit, you can select any age from which you’d like to start receiving a monthly pension.
Surrender ValueIt is suggested that you should not surrender a pension plan before the actual due date as you will lose all the benefits. However, if you still want to surrender it due to some reason, you can still receive the surrender value of the plan.
The surrender value is only given when you have invested in the plan for the minimum duration. This feature is generally only available in pension plans that have life insurance benefit.
Tax BenefitsMost of the different types of pension plans are highly tax efficient too. There are many different sections under the IT Act such as 80C, 80CCC, and 80CCD which make policyholders of pension plans eligible for tax deductions.
For instance, your contributions to NPS or National Pension Scheme are eligible for tax deductions under Section 80CCD of the IT Act.
Death BenefitMany of the pension plans also have a death benefit. It is an amount that the nominee of your policy receives on your death within the policy duration.For most plans, it is at least 105% of the total premiums paid to date. There are also life insurance-cum-retirement plans which offer a considerably higher death benefit.
Learn more about what is a pension fund and how it works to understand the features mentioned above better. This will allow you to select a pension plan that suits your retirement goal and investment style.
Learn more about Pension Plans here
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.
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