A Retirement plan is an insurance product which helps in providing you financial security post retirement. Pension plans can help you with adequate retirement planning so that you can live without compromising even after your retirement.

• It is a disciplined, affordable, and secure way for retirement planning
• You can get protection for your family, along with your retirement savings
• You can also choose to invest in market-linked pension plans or stick with a conventional pension plan
  

You should invest in retirement plans, which helps in providing guaranteed income after retirement to cater to your financial needs. Not only this, Retirement & Pension Plans also provides death benefit which is payable on the death of the policyholder.

With Retirement Plans, you get the flexibility to save while you are earning to build a large corpus of funds for retirement. You can start your retirement planning as soon as you start earning. You can start by saving smaller amounts on regular intervals to meet unexpected expenses and provide financial security post retirement.

Flexible Premium Payment Terms: With retirement and pension plans, you also get the flexibility to choose the premium payment term. You can select your premium payment term depending upon your financial goals

Customize your Retirement Plan: With additional riders, you can customize your retirement plans to help you and your family avail additional protection.

Tax Benefits*: Pension plans and retirement plans qualify for tax deduction under Section 80CCC of the Income Tax Act, 1961. You can avail tax deduction up to Rs.1.5 lakh for the purchase of a new policy or payments made towards renewal of an existing policy providing a pension or periodical annuity. Under pension plans, some amount is paid at maturity which is exempt from tax and the rest amount is used for annuity purchase. Annuity earnings are added to the taxable income and taxed as per your income tax slab. Also, no TDS will be deducted on annuities

*Note: The total tax deduction of Rs.1.5 lakh includes Section 80CCC, Section 80CCD(1).

Types of Retirement Plans 

Retirement plans can be classified in 3 ways:

1. Nature of investment

Investment plans - In this plan, you pay regular premiums which are invested in both equity and debt instruments. You can choose from fund options based on your financial risk appetite

Savings plan – These plans that do not invest in the market. You pay regular premiums and at the end of the policy term, you receive pay-outs with a regular frequency. Additionally, you receive any earned bonus

2. Time when the payout starts 

Immediate – You can pay a one-time premium and opt for immediate annuity that continues throughout your life

At a fixed time in the future - You can choose to receive payouts starting at a date in the future (say your retirement)

3. Annuity Plans 

Single Life with return of premium – You will receive income throughout your life and on your death, nominee will receive the amount invested as an annuity

Single Life without return of premium – You will receive income throughout your life

Joint Life with return of premium – You and your spouse will continue to receive income till either of you is alive. Nominee will receive the amount invested in annuity, post death of second life

Joint Life without return of premium – You and your spouse will continue to get income throughout life

How to Choose the Best Retirement Plan? 

You can choose the most suitable pension plan and retirement plan by keeping the following things in mind:

Vesting age: It is the age at which your pension will start. Retiring early or late will depend on your career and financial status

Premium payment term: Define the period for which you will pay policy premiums

Annuity options: Determine how much income will be enough to cater to your needs post retirement

Rider Options: Decide what all additional benefits you will need to provide a comprehensive cover to your family

Policy surrender charges: Take note of these charges, in case you have to surrender the policy

Retirement Planning Calculator: You can use the retirement planning calculator online to calculate the investment amount required to maintain the financial stability even after your retirement

How to Use Retirement Planning Calculator? 

Follow the steps mentioned below to calculate the amount you would need to live a financial stable and worry-less retired life:

Step 1: Visit retirement planning calculator online.

Step 2: Enter required information like your age, age at which you want to retire and click on “Proceed”.

Step 3: On the next page, enter details like present monthly expenses, percentage of monthly expenses that will continue even after retirement, expected inflation rate, current savings & investment for retirement, and expected return on your savings. After providing all this information, click on “Calculate”.

After providing all the information mentioned above, the tool will display the amount required for living a comfortable retirement life.

Frequently Asked Questions

Q. What is a Pension Plan?

A. Pension plans are insurance + investment plans that help an individual create a corpus for their own future, over a period of time (policy term). On maturity (retirement), a third of the accumulated corpus can be withdrawn as a lump sum and the rest in parts in the form of a pension. The regular payout portion is called an annuity. The payout frequency can be monthly / quarterly / half-yearly or annual. In the event of the policyholder’s death anytime during the policy term, the nominee receives the lump sum amount as promised at the time of purchasing the policy.

With a pension plan you can get a regular income post retirement, which is a great way of becoming financially independent.

Q. I already have a PF account. Do I still need a pension plan?

A. With inflation and the ever-increasing costs of living and health-care your PF corpus will not be sufficient for meeting your retirement needs. As a thumb rule, the corpus that a person needs for a financially independent retirement (assuming retirement age to be 58-60) is 100 time of the last drawn monthly salary. However, one should do a proper calculation before starting on this journey. Use a retirement calculator to ascertain the inflation-adjusted amount you will need for ensuring a comfortable retirement. Being market linked, retirement plans can give good returns over a long policy term and help you save enough money to lead a comfortable life.

Q. What is the right time to buy a retirement plan?

A. Every individual needs to plan for his/her retirement. Earlier people used to spend 20-25 years in the retirement phase. However, because of people seeking early retirement and with increased life expectancy, the retirement phase has increased to 30-35 years. With increasing costs of lifestyle, medicines, and healthcare, the corpus required for ensuring a financially independent retirement, becomes quite huge. During your earning years, you are also working towards fulfilling your dreams like buying a new car, house and meeting responsibilities like children’s education. Therefore, it is important to start early even if it means starting small. Retirement plans offer a disciplined and secure method of saving money to safeguard your future. Starting early on this journey will help you build a significant corpus for meeting your future needs.

Q. Things to consider while buying a retirement plan?

A. Corpus required at retirement - The first step is estimating the amount of money you will need to fulfill dreams of a good post-retirement life. It is important to account for all sources of funds like your PF and having a sufficient outlay for any medical contingencies.

Fund options – Most ULIP pension plans offer multiple fund options with varying degrees of risk (equity-debt allocation). Based on your financial risk appetite and investment tenure, choose the fund that meets your requirements. Equities should be given a particular place in your pension planning, as the returns in the longer term are generally better than other asset classes.

Flexibility – As pension schemes are long-term investments and personal, financial and economic circumstances will certainly change over the policy period, your plan should offer the choice to choose the type of investment suited to your financial risk appetite and the option to switch between funds as your outlook towards risk changes.

Additional features - A retirement plan can have the option to purchase additional life cover for your spouse. An ideal retirement solution should also provide you the option of increasing your savings in a systematic manner.

Q. Do I get any tax benefits with Pension Plans in India?

A. With pension & retirement plans, you can get tax benefit for the premium paid for renewal of an existing policy or purchasing a new policy. You can avail tax benefit of Rs.1.5 lakh under Section 80CCC of the Income Tax Act, 1961. Under pension plans, the amount paid at maturity is tax exempt and the balance amount is used for annuity purchase. Thereafter, annuity earnings are added to your taxable income and taxed as per your income tax slab. It becomes of extreme importance that you check the tax benefits as well before availing any pension plan.

ARN: PCP/RP03