TYPES OF RETIREMENT PLANS IN INDIA

RETIREMENT PLANS

Retirement plan or pension plan are type of investment vehicle in which you can invest a small part of your savings for a particular span and when you retire you can receive monthly pay out or lump sum amount from insurance company. The reason behind this been to provide you with a final security after retirement. Investing in a good plan will give your good returns as the amount will multiply due to compounding effect.

Retirement plans
Retirement plans


Keeping in mind the inflation, cost of living and other emergencies it become imperative to have and retirement plan. Also it will help you to live according to your goal ad standard of living.



    IMPORTANCE OF PENSION PLAN

    Many people do not put proper emphasis on what will happen once they stop working, sooner or later you will retire that inevitable. And also retirement fund is not something that can be started once you retire; you need to start well in advance. As I have mentioned this in my many previous articles the secret of having a good retirement fund is to start early. 

    VARIOUS KIND OF PENSION PLAN IN INDIA 

    Your retirement benefit and the final security that you will receive are largely going to depend on the scheme you have applied for. So here are the different types of retirement schemes available in India.

    • Life Annuity
    • National Pension Scheme
    • Pension Funds
    • Whole Life ULIPs (Unit Linked Insurance Plan)
    • Deferred Annuity
    • Immediate Annuity
    • Annuity Certain
    • With cover and without cover pension plans
    • Guaranteed Period Annuity

    Life annuity

    The word Annuity means a financial product in which the annuity owner known as the annuitant receives periodic payout amount till his death. In the 1st phase Annuitant pays into the annuity while he is working periodically (premium) or during retirement as a lump sum amount this is called accumulation phase or deferral stage.

    In the second phase or the annuitization phase the insurance company or annuity provider make periodic payment monthly, quarterly, semiannually or annually to the annuitant. The company continues to make the payment until the annuitant dies or any triggering event occurs which may lead to closing of annuity. But the payment may continue to annuitant beneficiary if the annuitant has selected the options.

    National Pension Scheme (NPS)

    NPS is a government sponsored pension scheme which was introduced in 2004 for government employees, but latter in 2009 it was open to all sections. It allows any individual to contribute regularly to the pension account during its working life. At the time of retirement the individual can withdraw a lump sum amount and use the remaining amount to buy an annuity.

    Any Indian including NRI between the age of 18 and 60 can enroll for NPS.

    Pension Funds

    Here the employee receives payment equal to a certain percentage of their average salary over the last few years. In the formula the years with the same company are counted. The fund is contributed by both employer and employee with the employer paying the larger share. Public pension plan offers good return compared to private plans.

    Whole Life ULIPs (Unit Linked Insurance Plan)

    ULIP is a combination of insurance policy and investment opportunity it is provided by an insurer. Here you are offered insurance, when you pay the premium; the part of it is used for investment which can be equity, debt or hybrid depending on your need. A fund manager looks after your investment.

    ULIP has a lock in period of five years. However, insurance policy and mutual fund both are a long term investment option so ULIP should be held for 15 years or more.

    Deferred Annuity

    A deferred annuity is a contract with the insurance company in which you are promised to be payed regular income or lump sum at some future a date. Here the individual contribute in the form of premium which is then invested by the insurance company.

    There are 3 types of deferred annuity

    • Fixed: - the rate of return is fixed
    • Indexed: - rate of return is dependent on the performance of any particular index
    • Variable: - rate of return depends on the portfolio of mutual funds or the sub-account chosen by you

     You are not taxed on your contribution, but on the payout you receive at the normal income tax.

    Immediate Annuity

    The insurance company pays the individual guaranteed income immediately. A contribution is made as a lump sum amount after within a month the annuity starts. The payout method called as mode can be determined by the owner as to be monthly, quarterly, annually or semiannually. The amount of payment is calculated based on the age of the receiver, interest rates, and length of the annuity.

    Most people opt for this option to supplement their other retirement income.

    Annuity Certain

    In annuity certain the annuitant (his beneficiary, his estate) receives the payment for a fixed period of time, which is typically 10, 15, 20 years. You can also take the annuity as a lump sum amount. This plan is good for short term, but not for long term, this is good to supplement your retirement with some other retirement plans. Many times people outlive their annuity period so relying completely on annuity certainly is not a good idea.

    With cover and without cover pension plans

    In life cover pension plan a lump sum amount is paid to the nominee of policyholder in case of his untimely demise. On the other hand, in case of without cover pension plan no lump sum amount is paid, however all the premium is paid back to the nominee.

    Guaranteed Period Annuity

    Here the annuity is provided to the policyholder for a specific period, which is typically 5, 10, 15 years. It doesn’t matter if the policyholder survives that duration.

    CONCLUSION

    The most effective retirement planning tool is time            - SALLY HERIGSTAD

    We can’t deny that we all are going to retire that is inevitable. Why not take time to think about it now, so that your future self will thank you. Retirement planning is no big task with so many schemes and technology you only need to take initiative.

    I hope this article was useful to you. If there is any question in your mind please do let me know.

    Thank you!


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