Pension Plans Are Complicated -- How Do They Work?

Pension plans are the last thing that people want to think about but it is an important step towards securing one’s future. It is not just about saving for financial stability and security post-retirement, particularly during old age.

All it takes is systematic savings from your current income to secure your future. However, pension plans may seem complicated and unlike other saving schemes.

This article lists out all the details that one needs to know about pension plans and how to save one.

What is meant by Pension Plans?

In essence, pension plans in India refer to offers that provide tax relief, withdrawal benefits, and reinvesting balance in one’s investment portfolio. The main objective is to provide monetary security during post-retired life.

What Are the Types of Pension Plans?

The Government of India runs a number of pension schemes. Essentially, there are two types of pension plans available are as follows:

• National Pension Scheme
• Public Provident Fund

These schemes offer tax breaks, insurance cover, and fund disbursement following benefits:

• Immediate annuity
• Deferred annuity
• With life cover or without
• National Pension Scheme

Immediate annuity refers to a pension that is paid out immediately based on lump sum amount paid for the scheme or the premiums paid. Similarly, deferred annuity refers to the accumulated amount that is distributed over a time period, which is exempted from tax unless funds are withdrawn prematurely.

Immediate annuity covers do not include life cover while deferred annuity has a life insurance cover and for immediate annuity, the policyholder’s heirs do not gain benefit for immediate annuity. Additionally, under National Pension Scheme the accumulated amount is invested in government debt or equity based on the policyholder’s preferences.

Are Pension Plans Necessary?

Yes, pension plans are necessary especially with advancing age when the potential to earn an income on a regular basis diminishes. However, setting aside some money each month is good habit can help one continue living comfortably after retirement.

In order to experience the benefits of investing in a retirement plan, one should start saving early on. The easiest way to get a head start would be to buy a pension plan by investing a lot of money in it.

However, this is not an option for those living on a salaried income and they provide tax benefits as well. For this reason, a systematic investment plan will serve to be the best option as a long-term savings plan and at the time of maturity, time of retirement, it will be helpful.

What are the Tax Benefits Available for Saving in Pension Plans?

In an attempt to encourage saving, particularly for retirement, the Income Tax Act comes in handy. Some of the benefits are as follows:

• Investing in NPS provides relief under Section 80CCD
• Tax rebates under section 80CCC

If the technicalities are difficult to understand it is best to consult an expert since they will be able to guide investors in the right direction. Also, one can avail maximum benefits under these tax saving schemes.
What are some of the Top Pension Plans Available in India?

Some of the top pension plans available in India include the following:

• LIC Jeevan Akshay 6 Plan
• SBI Life Saral Pension Plan
• HDFC Life Assured Pension Plan
• Reliance Smart Plan

LIC Jeevan Akshay 6 Plan

As an immediate annuity plan, the LIC Jeevan Akshay 6 policy plan can be taken up by paying a lump sum amount and the policy begins from that time. Some of the key features of this pension plan are as follows:

• Pension can be received on a monthly, quarterly, half yearly and annual payments
• No medical exams required to enrol in this scheme
• Minimum age of entry is 30 years and maximum is 85 years
• Premium paid is tax exempted
• Minimum purchase price is 1 lakh (offline) and 1.5 lakh (online)

SBI Life Saral Pension Plan

This pension plan is a traditional pension plan that safeguards policyholders from volatility and market malfunctions. Some of the features of the plan are as follows:

• Guaranteed bonus within 5 years
• Minimum premium payment is Rs 7,500 per month and there is no maximum limit
• Minimum age of entry is 18 years and maximum is 65 years
• Minimum maturity age is 40 years and maximum is 70 years

HDFC Life Assured Pension Plan

The HDFC Life Assured Pension Plan is a unit linked plans to help policyholders reach their retirement goals. Some of the features of such pension plans are as follows:

• Loyalty addition every alternate year from 11th year
• Minimum age of entry is 18 and low maturity age is 45 years
• Single and limited pay options
• Death benefit will the higher than fund value

Reliance Smart Plan

The Reliance Smart Plan is a non-participating ULIP plan which helps policyholders save and build a lump sum amount to generate an income post retirement. Some of the features of such plan plans include:

• Term policy ranges from 10 to 30 years
• Double equity participation benefits and capital guarantee
• Minimum age is 45 years and maximum age is 75
years
• Receive guaranteed loyalty additions

Investing in pension plans is a smart move to secure one’s future and live a stress-free life post-retirement.