Types of Pension Plans Preferred for Retirement Planning

If you want to live a financially independent life after retirement, it is essential to start planning the same as early in life as possible. While you can start saving from an early age and build a large corpus by the time you retire, receiving regular pension can be an added benefit.Moreover, as there are now many different types of pension plans available, it is easier to select one that best suits your requirements. So, what are the top options? Here are 4 of the most popular ones.

Regulated by Pension Fund Regulatory and Development Authority (PFRDA), the National Pension Scheme or NPS is a popular option if you want to receive a regular pension after retirement. With NPS, you can contribute to a pension account during your working life.Your funds are invested in a mix of debt and equity markets as per your choice. Once you are 60 years old, you can withdraw one part of the investment as a lump sum amount and use the remaining for purchasing an annuity which will guarantee a regular income.

PFRDA has authorised as many as six companies to offer pension funds in India. But what is a pension fund ? Pension funds require you to invest a fixed amount for a fixed duration in a fund of your choice. The fund providers generally offer many different types of funds to suit different investors.As the value of the fund increases, so does your investment in them. After retirement, you can withdraw the entire amount or remain invested and receive regular income.

An annuity pension plan is of two types- immediate and deferred. In immediate annuity plans, you pay a lump sum amount and instantly start receiving an annual or monthly annuity.With deferred plans, you invest a lump sum amount or make regular payments for a fixed duration. The annual or monthly annuity is only received after a particular term. The annuity payment can be either for a fixed period or for a lifetime in both the plans.

These plans offer the dual benefits of life insurance and investment. One part of your premium is reserved for life insurance, and the remaining is invested in a fund of your choice.On maturity, you can withdraw the entire corpus at once or receive regular payments. If you die during the policy term, your nominee will receive the death benefit.Try to know more about the types of pension plans listed above and go with one that offers a dynamic combination of savings, safety, and guaranteed income post retirement.

A pension plan is designed to provide you with a regular income after retirement. In return for making regular contributions, you receive payments from the plan based on how much money you have invested.The money you put into your pension plan can be used to purchase a fixed annuity that becomes a guaranteed source of income for the rest of your life. With the right amount of planning and forethought, this plan can offer you a stable source of income for life after retirement. Thus, pension plans can be a good option for people who want to prepare for retirement.

A pension plan is a type of retirement plan that allows people to save money for retirement. Once a person starts contributing money to a pension plan, it grows during the tenure. When the person retires, the pension plan can provide them with a steady income for years after they stop working.

Pension plans help individuals accumulate funds for life after retirement. It allows the investor to build a retirement corpus by investing a specific amount on a regular basis.Typically, there are two phases in a retirement plan-

• Accumulation Phase
  The investor makes investments during this phase.
• Vesting Phase
  After the investor retires, he/she gets regular income.

Here are some of the most common types of pension funds -

• National Pension Scheme (NPS)
• Public Provident Fund (PPF)
• Annuity Plans (Deferred Annuity and Immediate Annuity)

National Pension Scheme (NPS) is a government scheme that allows subscribers to accumulate funds for post-retirement life. During the accumulation phase, subscribers are required to make contributions toward their NPS account . Once a subscriber retires, he/she is allowed to make a partial withdrawal. The remaining amount is invested in an annuity plan. It’s paid out in regular intervals.

Here are some of the benefits of NPS-

It Can Provide a Source of Income After Retirement

Investing in NPS can help subscribers live a stress-free life after retirement. When the NPS matures, the subscriber will become eligible to make a partial withdrawal. The remaining amount will be paid out on a regular basis.

It Can Offer Tax Benefits

Under Section 80C , a subscriber can claim a tax deduction up to Rs. 1.5 Lakh on the contributions made towards the NPS account. Furthermore, they can get an additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B).

An annuity plan is a type of retirement product that pays out periodic cash payments to you in exchange for the money you deposit during the accumulation phase. In case of an annuity plan, you can start receiving a fixed amount on a regular basis. Annuities can be a great option for people who want regular income after retirement.Typically, there are two types of annuity plans-

Deferred Annuity

A deferred annuity allows you to pay a lump sum amount or make regular monthly payments towards the plan.The pension will start once you retire.

Immediate Annuity

In case of an immediate annuity, you need to make a lump sum payment. After that, you can start receiving income regularly.

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.