Retirement and Pension Plans – Definition, How it Works, Types, Eligibility, Features, Benefits, Eligibility Criteria | Buy and Renew Online

What is a Pension Plan? - Definition

A Pension Plan is an investment plan where you systematically save money over time and in return receive a steady income on a Periodic Basis after retirement. The Person can consistently save money through a one-time lumpsum payment or periodic contributions and build a retirement corpus which provides a regular income stream post-retirement. A Pension Plan provides financial stability in your retirement years when your salary or business income stops. The funds received from a Pension Plan can be used to take care of your day-to-day-expenses, travelling, starting a business etc.

How does a Pension Plan work?

A Pension Plan is a Life Insurance Plan which offers a steady income after retirement. The Policyholder makes regular or lumpsum contributions to the Plan with a goal to ensure financial security when the he is no longer working.

A Pension Plan has 2 main stages:

1. Contribution and Accumulation Stage: During this stage, you make regular premium contributions which are invested in a fund of your choice. You can make contributions on a monthly or an annual basis or even make a one-time lumpsum payment.
2. Retirement and Payout Stage: When the Pension Plan matures, you can liquidate the plan to receive an immediate payout or you can choose to receive regular monthly payments and ensure a fixed incomes. Many pension plans provide lifetime income, ensuring that you receive payments as long as you live.

What are the different types of Pension Plans available in India?

Following types of Pension plans are available in India

1. Annuity Plans: An Annuity Plan offers a regular stream of income for a fixed period. The Policyholder makes a lumpsum payment or a series of premium payments and in return, you receive monthly or periodic payments. Following types of Annuity Plans are available in India:
2. Deferred Annuity: A Deferred Annuity Plan offers a fixed income starting from a future date chosen by the Policyholder. You make a one-time lumpsum premium payment or a series of premium payments over a pre-defined time period. After the end of Waiting Period/Deferment Period, the Policy pays a fixed income to the Policyholder.
3. Immediate Annuity: An Immediate Annuity Plan offers a fixed income to the Policyholder starting immediately. You make a one-time lumpsum premium payment and start receiving regular payouts immediately.
4. Life Annuity: In a normal Annuity Plan, you make a one-time lumpsum premium payment or a series of Premium Payments and receive monthly payments in return. A Life Annuity Plan ensures that you receive a Pension amount till you are alive and including your spouse in the Plan ensures that he or she would continue to receive the annuity even after your demise.
5. Guaranteed Period Annuity: A Guaranteed Period Annuity Policy provides you with consistent as well as pre-determined payments for a specific period of time i.e. 10 years or 20 years. Annuity Payments are guaranteed, irrespective of any changes in the markets or Rate of Interest.
6. National Pension Scheme: National Pension Scheme is a Government-backed market-linked retirement scheme. Under the National Pension Scheme (NPS), you can choose to invest in a range of investment options allowing you to build a sizeable retirement corpus which can be withdrawn as you turn 60 years of age. NPS is applicable for employees across the Private, Public and Unorganised sectors.
7. Public Provident Fund: Public Provident Fund is a long-term investment plan with a tenure of 15 years where you can contribute a fixed amount annually. The Plan Tenure can be extended in a block of 5 years. You can invest a maximum of Rs1.5 lakhs in this plan either on a lumpsum basis or in 12 monthly instalments. The funds invested in PPF Account are not market-linked. The Government sets the interest rate on PPF every financial quarter.
8. Employees Provident Fund: An Employee Provident Fund (EPF) allows salaried employees to receive a pension once they retire after the age of 58. This scheme is available only to employees working in the organised sector. Under an EPF Scheme, both employer and employee, contribute 12% each of the employee’s salary each towards the scheme. The entire share of an employee’s contribution goes towards EPF while 8.33% of the employer’s contribution goes towards EPS (Employees’ Pension Scheme, and the remaining 3.67% goes towards EPF contribution per month. On trtirement, the employee receives the funds contributed by the employer and the employee along with Accrued Interest.
9. Atal Pension Yojana: Atal Pension Yojana is a government backed retirement scheme that offers a guaranteed pension of Rs. 1000 - Rs. 5000 depending on the amount you contribute every month. The scheme offers payment on attaining 60 years of age.
10. Retirement-Focused Mutual Fund Scheme: One can also choose to invest in a retirement focused mutual-fund scheme that offers both liquidity and tax benefits. Individuals with a risk appetite can invest in mutual funds as these offer market linked returns.

What are the Features of Pension Plans?

1. Life Coverage: Some Pension Plans provide a Death Benefit to the nominee if the Policyholder dies during the Policy Term.
2. Liquidity: Some Pension Plans allow partial withdrawals in case of Emergencies
3. Stable Income Post-Retirement: Pension Plans provide a regular income after retirement. This is very important as your other sources of income like salary or business income stops after retirement.
4. Tax Benefits: Pension Plans like NPS provide Tax -Benefits under Section 80C of the Income Tax Act - 1961

What are the Benefits of Pension Plans?

Pension plans are a long-term investment option offering you a steady income after retirement. A Pension Plan offers the following benefits:

1. Financial security after retirement: A Retirement Plan provides a guaranteed income which ensures a steady cash flow to help you manage your expenses after retirement.
2. Tax Benefits: Pension Plans provide Tax Benefits under section 80C of the Income Tax Act, 1961.
3. Guaranteed Payments: Some Pension Plans offer guaranteed payouts which are not linked to marker conditions or rate of interest. This adds a lot of certainty in terms of income.
4. Risk Mitigation and Flexibility: Many Pension Plans offer Inflation-adjusted returns which ensures that your retirement income is not impacted due to inflation. Some plans also offer the option to invest in a range of investment options which ensures the risk is spread across different assets to help you maintain a balance.
5. Long-Term Focus: Pension Plans encourage a long-term savings habit, reducing the temptation to dip into funds for short-term expenses. Since pension funds are usually locked-in until retirement, it allows for focused wealth accumulation.

Best Pension Plans in India

HDFC Click 2 Retire

HDFC Click 2 Retire is a Unit Linked Pension Plan which offers a Regular Income Post Retirement. You can choose either a Single Pay or Premium Paying Term of 8, 10 or 15 years with policy term of 10 to 35 years as per your needs.

Key Features of HDFC Click 2 Retire Plan

1. HDFC Click 2 Retire Plan charges only Fund Management Charge and Investment Guarantee Charges
2. There is No Premium Allocation Charge, No Policy Administration Charge and No Exit Charges
3. The Plan provides an Assured Vesting Benefit which is calculated as higher of the Fund Value or Assured Vesting Benefit
4. Assured Vesting Benefit is calculated as [101% +1% * (Policy Term minus Premium Paying Term)] * Total premiums paid till date
5. Single and Limited Pay Premium Payment Options (8, 10 or 15 years) available
6. Policy Term of 10, 15 or 35 years
7. Death Benefit of 105% of total premiums paid till date

ICICI Pru Guaranteed Pension Plan Flexi

ICICI Pru Guaranteed Pension Plan Flexi is a Pension Plan providing a Guaranteed Income after Retirement. In addition to Guaranteed Income, the plan also offers options for lumpsum payouts to address lifestyle and healthcare needs.

Key Features of ICICI Pru Guaranteed Pension Plan Flexi

1. ICICI Pru Guaranteed Pension Plan Flexi provides guaranteed income for entire life
2. Policy has a Joint Life Annuity Option where the Spouse/Parent/Child/Sibling continues to receive the Annuity Amount after the Primary Annuitant dies.
3. Minimum Entry Age of 40 years and Maximum Entry Age of 70 Years
4. Deferment Period of 5 to 15 years
5. Option to Top-up the plan as and when you have additional funds to save
6. Increasing Annuity Option is available to provide a shield against inflation for your retirement income
7. ICICI Pru Guaranteed Pension Plan Flexi provides an option to choose Policy with or Without Return of Premium Option
8. In case of the Death of the Primary and Secondary Annuitant during the deferment Period, a Death Benefit is payable to the Claimant which is higher of (i) Total Premiums Paid by you + Accrued Guaranteed Additions (ii) 105% of Total Premiums Paid till date
9. In case of death of either Primary or Secondary Annuitant after the Deferment Period, no Death Benefit will be payable.

Max Life Guaranteed Lifetime Income Plan

Max Life Guaranteed Lifetime Income Plan is a Non-Linked, Non-Participating, Individual General Annuity Savings Plan providing a Guaranteed Income after Retirement.

Key Features of Max Life Guaranteed Lifetime Income Plan

1. Max Life Guaranteed Lifetime Income Plan provides guaranteed income for entire life
2. The Plan provides an option for Deferred Annuity as well as Immediate Annuity. Deferred Annuity has options for Single Pay and Limited Pay Premium Payment Option
3. Policy has a Joint Life Annuity Option where the Spouse/Parent/Child/Sibling continues to receive the Annuity Amount after the Primary Annuitant dies.
4. Minimum Entry Age of 25 years and Maximum Entry Age of 85 Years
5. Deferment Period of 5 to 10 years
6. Vesting Age of 30 Years to 90 years for Deferred Annuity
7. Max Life Guaranteed Lifetime Income Plan provides an option to receive Annuity on Monthly, Quarterly, Semi-Annual and Annual basis.
8. Option to Top-up the plan as and when you have additional funds to save
9. Loan Facility is available against the Policy

Kotak Lifetime Income Plan

Kotak Lifetime Income Plan is a Non-Linked, Non-Participating, General Annuity Savings Plan providing a Guaranteed Income after Retirement.

Key Features of Kotak Lifetime Income Plan

1. Kotak Lifetime Income Plan provides guaranteed income for entire life
2. Policy has a Joint Life Annuity Option where the Spouse/Parent/Child/Sibling continues to receive the Annuity Amount after the Primary Annuitant dies.
3. Minimum Entry Age of 40 years and Maximum Entry Age of 70 Years
4. Kotak Lifetime Income Plan provides an option to choose Policy With Return of Premium Option
5. The Plan provides a High Premium Discount if the Policyholder chooses to pay a Premium in the High Premium Band
6. Premium has to be paid in a single Installment only

Why should you invest in a Pension Plan?

The Average Life Expectancy is increasing in India which means that many people will pass a substantial number of years in retirement. After Retirement, your Salary and Business income will stop but your expenses will continue. Additionally, Medical Expenses also increase with age and these expenses are difficult to manage unless you have planned for them. All this necessitates that you plan prudently for your retirement and create a retirement corpus so that you can manage your expenses efficiently and without worry after retirement.

Who should invest in a Pension Plan?

Following People should invest in a Pension Plan:

1. Young Professionals: Young People have lesser responsibilities which means that they can contribute small sums to build a retirement corpus and benefit from power of compounding
2. Self Employed Individuals: Self-Employed People do not have the benefit of their employer contributing towards their Retirement Plans which means they should take the responsibility of creating their own retirement corpus.
3. Parents: Parents who want to retain their financial independence and do not want to depend on their children for expenses after retirement should purchase a Pension Plan.

What is the eligibility criteria to invest in a Pension Plan?

The eligibility Criteria to purchase a Pension Plan in India is as follows:

1. Entry Age: Pension Plans have a Minimum Entry age of 18 years and Maximum Entry age of 65-75 years.
2. Vesting Age: Pension Plans have a Minimum Vesting Age of 30 years and Maximum Vesting Age of 80 years.
3. Policy Term: Policy Term ranges from 10 to 30 years

How much do you need for Retirement?

The Retirement Corpus needed for each and every individual varies based on their expenses and depends on the following factors:

1. Determine Monthly Expenses: Review your monthly expenses. While Some expenses like School fees and Home Loan EMIs will stop after retirement, other expenses like Medical Expenses might increase. You will have to account for such variations in expenses and arrive at a rough figure of what your monthly expenses are likely to be after retirement.
2. Retirement Goals: You might want to travel or start a new business after retirement and this will require additional investments. You should consider such factors when planning your Retirement Corpus.
3. Consider Inflation: You should consider the expected Inflation Rate in your expenses and incorporate the same when planning for your retirement corpus.

What are the documents required to purchase a Pension Plan?

You need the following documents to purchase a Pension Plan in India:

1. Identity and Age Proof – PAN Card, Aadhaar Card
2. Proof of Address – Aadhaar Card, Driving License, Passport
3. Income Proof – Bank Statements, Salary Proof
4. Medical Reports

How to choose a Pension Plan?

Choosing a right Pension Plan is important to ensure you have an adequate retirement Corpus. You should look at the following factors when choosing a Pension Plan:

1. Compare returns: Compare the returns offered under various Plans and choose a Plan offering higher returns which will help you cover your retirement needs.
2. Guaranteed Returns: Investing in a Guaranteed Return Plan provides certainty of income in your retirement years. Ensuring a certain amount of Guaranteed Returns in your Retirement Planning ensures that you have a steady cash flow irrespective of Market Returns or Rate of Interest.
3. Flexibility: Look for a Pension Plan that offers the option to increase your investment amount and also that offers you flexibility in terms of Premium Payment. This flexibility is important when there are changes in your Retirement Corpus Calculations.
4. Bonus: Most Pension Plans offer a bonus that helps you increase your Retirement Corpus. You should opt for a plan that offers a bonus along with loyalty benefits, etc.

How to purchase a Pension Plan with Qian Insurance?

1. Contact Qian Insurance via email at insurance@qian.co.in or call us on 022-35134695. Our team will offer various options for Retirement Plans.
2. Compare the Features and Premiums of different plans and select a plan that best suits your requirements and budget.
3. Make the Premium Payment Online and receive Policy Copy.

Get Best Quotes for Pension Plans with Qian Insurance!

Pension Plans offer financial security in your retirement years. It is important to take the advice of an experienced Insurance Broker when choosing a Pension Plan. If you wish to purchase a Pension Plan, you can you can email us at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you