Pension Plan

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Types of Pension Plans in India

To cater to the requirement of the insurance seekers, there is a wide range of Pension Plans available in the market. These plans have multiple classifications, based on the plan structure and benefits. These pension plans can be further divided into 8 categories:

  • • Deferred Annuity
  • • Immediate Annuity
  • • Annuity Certain
  • • With Cover and Without Cover Pension Plans
  • • Guaranteed Period Annuity
  • • Life Annuity

Let’s explore these pension funds in detail:

Deferred Annuity

A deferred Pension Scheme allows you to accumulate a corpus through regular premium or single premium payment over a policy term. After the completion of the policy tenure, the pension is provided to the insured. The deferred pension scheme offers various different benefits to the insured person. Moreover, it also offers the benefit of a tax exemption that is associated with the pension scheme. In a deferred pension plan, only 1/3rd of the corpus is tax-free on withdrawal, whereas the 2/3rd of the corpus is taxable. The amount invested in a deferred pension plan is locked and cannot be withdrawn for any emergency.

A deferred pension scheme can be bought by paying one-time payment as well as paying regular premium payments. Therefore, these pension schemes are suitable for all types of investors, be it those who want to invest systematically and those who have a chunk of money to invest at one go.

Immediate Annuity

Under an immediate annuity scheme, the pension is provided immediately. The policyholder has to pay a lump-sum amount and pension will be provided instantly, based on the lump-sum amount paid by the policyholder. Under the immediate annuity pension scheme, the insured can choose from the range of annuity options. Moreover, the premiums paid are tax-exempted as per Income Tax Act, 1961. In an immediate annuity retirement plan, the nominee of the policy is entitled to receive the money in case of demise of the insured person during the tenure of the policy.

With Cover and Without Cover Pension Plans

With cover pension plans have life cover component in the plan. Upon the death of the policyholder, a lump sum amount is paid to the beneficiary of the policy. However, the cover amount is not very high since a large part of the premium is paid towards growing the corpus rather than covering for life risk.

Under without cover pension plan, no life cover is offered to the insured person. In the event of unfortunate death of the insured person, the nominee will get the corpus (till the date of the death). Currently, deferred pension schemes come with the option of life cover, whereas immediate annuity plans do not offer the option of life cover.

Annuity

Under this pension plan option, the annuity is paid to the annuitant for a specific number of years. The annuitant can choose the period and if they pass away before receiving all complete payment, the annuity will be paid to the beneficiary of the policy.

Guaranteed Period Annuity

Under guaranteed period annuity plan, the annuity is provided to the policyholder for certain periods like 5years, 10years, 15 years or 20 years, whether or not the insured survives that duration.

Life Annuity

Under the life annuity plan, the pension amount will be paid to the annuitant until death. After choosing the option of ‘with spouse’, the amount of pension will be given to the spouse of the policyholder, in case of the death of the policyholder.

National Pension Scheme (NPS)

New Pension Scheme was introduced by the government of India in order to secure the financial future of the individual after retirement. The policyholder can put savings in the New Pension Scheme. As per the preference of an individual, the money invested in the National Pension Scheme is put in equity and debt funds in order to generate returns on investment. The policyholder can withdraw 60% of the amount at retirement and rest 40% of the amount is used to purchase the annuity. The maturity proceeds are not tax-free.

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