Retire Wealthy: Know About Different Types of Retirement/ Pension Plans
Written on Friday, July 28, 2017
By Mitali Sharma
When you are employed in a regular job, money inflow and the complementing financial stability appear to be an infinite reality. However, you must not forget that this inflow of regular income is for a limited time only as your 'Retirement' countdown is also ticking simultaneously. You must balance your financial priorities and save for your retirement so that you don't face any sort of income gap while sifting from your employment days to retirement days. The smartest way is to start saving and investing for your retirement corpus as early as you can, More you will give your money the time to grow, better returns you will reap.
But before you start investing for retirement, you must know what are the options available to you. Options are many. You can go for a proper pension plan to streamline a regular income after retirement or can invest in mutual funds through Systematic Investment Plan (SIP) to build your retirement corpus. To know more about SIP and its benefits, read
This blog will cover details about various pension plans. What are Pension Plans? Retirement is often referred as a golden period. Yes, it is for many proclaimed reasons. But there is only one challenge – Retirement may bring an end to your regular income. You can overcome this challenge by investing in a good Pension Plan. Pension plans are also known as Annuity Plans. These are specifically designed to streamline a regular income for the retired people.
As a policy holder of a pension plan, you can invest one-time lump-sum amount or can make regular investments (depending on the plan type). Then, from your choose date (also known as the vesting date), you will start receiving the pension. There is no mandate that this vesting date has to be a date post your age of 60. You can choose an immediate or early vesting date depending on your plan type.
Different Types of Pension Plans
Pension plans or annuity plans are of two types- Immediate Annuity or Deferred Annuity.
Deferred Annuity: Here, the policy holder requires paying premiums at regular intervals for specific numbers of years. This investment period is like the accumulation phase. Once this period is over, then from the chosen vesting date, the policy holder starts receiving his/her regular pension.
Key Features of Deferred Annuity:
1. Regular premium paying, lump-sum investment not required
2. Pension payouts are not immediate and come into effect only after the completion of certain number of years as specified in the plan
3. A section of the annuity corpus can be withdrawn as a lump-sum and rest gets utilised for providing regular pensions
4. Traditional annuity plans are low-risk plans as they invest mostly in debt instruments such as government securities
5. Unit-linked pension plans have a higher potential of returns as it allocates investors' money into various asset classes, such as equities, debt, etc.
If you are looking for immediate pension income, then you have the option of Immediate Annuity Plans.
Key Features of Immediate Annuity:
1. Policy holder needs to make one-time lump-sum investment
2. Majorly, pensions are paid with immediate effect
3. The frequency of the payouts can be yearly, semi-annually, quarterly or monthly
4. Annuity can't be cancelled, means the invested amount can't be withdrawn as a lump-sum. It will be paid in form of regular annuity only.
Tax benefits depend on the type of your pension plan. Mostly, the tax benefits are offered under Section 80 C of Income Tax Act 1964. Rest there are some tax benefits on withdrawal also. In general, you can withdraw a section (mostly 1/3) of your accumulated pension funds without paying any tax. If you are planning to create your retirement corpus through SIP, then after one year of holding the capital returns through mutual funds will be tax-free.
Being prepared for your retirement in advance is important for various reasons, which are already known to one and all. First of all, after hitting 60, in general, an individual's medical needs increase. Secondly, inflation will eventually rob your purchasing power, so you got to retire with a massive savings or device some channel of regular income for your retirement days. Thirdly, post retirement, you are likely to be through your various family responsibilities and thus will be handy with ample free time, which can be best utilised for long desired vacations, travelling or hobby pursuing. Under the impact of any of these or all of these reasons, you are good to go if you have the confidence of financial stability and security for your retirement days. Start saving and investing early for your retirement to build your financial confidence.