Finance

What are the various types of pension plans in India?

Retirement can be the most stress-free yet the most challenging phase of your life. While it can offer you a peaceful break after the rigorous hard work, it can put you into financial trouble if you haven’t saved adequately. If you want to ensure you get to live a financially independent retirement period, you should invest in retirement pension plans. A pension plan can allow you to meet your routine needs as well as achieve your life goals after the flow of your income stops.

There are different retirement plans in India to match your evolving needs. Due to the multiple options, you might tend to get confused about which pension plan can match your financial requirements. Moreover, if you select the wrong pension plan without understanding your needs, you might end up in a financial turmoil after retirement. Hence, let’s take a look below at these top three pension plans that can help you to live a smooth retirement phase:

  1. Unit Linked Insurance Plan (ULIP)

A ULIP plan might be a market-linked product, which can ensure the safety of your family as well as your investments. It can be an amalgamation of investment and insurance under a single integrated plan. Due to its dual benefits, you can not only actively participate in the capital market as well as safeguard your family after retirement. Since you might not be able to afford the market risks after retirement, you can diversify your investment portfolio with the switching feature. Under a ULIP policy, the switching feature can allow you to secure your invested capital from market volatility as well as let you shift from equity funds to debt funds. If you are not comfortable with switching funds yourselves, life insurance providers give you a facility where you can allow the companies fund managers to manage your funds. One needs to be well informed or consult an advisor or expert before making this decision.

  1. Annuity Plan

An annuity plan can allow you to receive monthly payment when the flow of your income stops after retirement. However, you can get a regular payment every month only if you make a lump-sum investment. Typically, your insurer would invest your money and provide you with the generated returns in exchange.

Under annuity plans, you can choose between the following options mentioned below:

  1. Immediate annuity plan

As a policyholder, you can operate an immediate annuity plan after reaching the vesting age. Once you invest a lump-sum amount, you can be eligible to receive the annuity payment immediately either for a limited duration or a whole lifetime.

  1. Deferred annuity plan

Under a deferred annuity plan, you can receive the annuity payment after a pre-decided date. Typically, the annuity payment can be divided into two phases:

  • Accumulation phase

Under the accumulation phase, you should accumulate wealth from the date of your first premium payment.

  • Vesting phase

Under the vesting phase, your insurer might provide the benefits in the form of pension payment.

  1. National Pension Scheme (NPS)

The National Pension Scheme can be one of the most popular retirement plans in India. Since it is backed by the government of India, many of you might opt for it to serve your retirement purpose. When you invest in NPS, your investments can be diverted to equity funds and debt funds based on your preference. While you can withdraw 60% of your money for your retirement, the remaining 40% can be used to purchase an annuity. In addition to this, the payout received on the maturity date can be tax-free.

To sum up, retirement can no longer be about age. While many of you might retire early to fulfil your life goals, the rest of you might retire at the usual retirement age between 55-60 years in India. After retirement, the accumulation of wealth can matter the most to determine your financial sustenance in the long run. Hence, invest in the right retirement pension plan in India based on your financial requirements. With the right retirement pension plan, you can live a sound and secure retirement period without financial constraints.

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