Know All About the Pension Schemes

By month end most of us have only one thing to look forward to; next month’s salary! Can you imagine how horrifying it would be if you didn’t get your salary for a month? Now think of how retired life would be – no job, no salary (ever!) with the added pressure of expenses (that will be there for lifetime). And that’s exactly why pension schemes/plans are of extreme importance.

Pension Schemes

What are pension plans?

Pension plans or retirement plans are long-term investment plans that are designed to offer regular income to people after retirement by accruing small savings on a regular basis over a considerable period of time. By opting for these plans, individuals can even receive tax benefits.

Importance of pension plans

Viable source

As per various reports, a large portion of the currently employed are not eligible for pension and this is compounded by the fact that only a small portion of the working class (the younger generation to be precise) are planning for their life after retirement. Under such a situation only a pension plan can act as a viable source of income after the retirement.

Life expectancy

When compared to last 2 decades, the life expectancy has risen by almost 10 years and has reached the figure 68.78 years as per the World Bank for the year 2017 in India. This means a higher need for money post-retirement.

Inflation & Health cost

With the never-ending population explosion, the health cost & inflation is on an ever-increasing trend. The expenses incurred for medications and hospitalization are the perfect examples; these are increasing on a daily basis. Hence having a pension plan will definitely ease the pressure on you and your loved ones in your golden years.

Tax benefit

Having a pension plan can give you tax benefit under Section 80C of the Income Tax Act. When pension plans offer these many benefits why not opt for one? But then the question arises – which one? Here are the types of pension schemes available in India.

Types of pension plans in India

Immediate Annuity Plans

Under this plan, the pension payment starts immediately after the premium is paid in lump sum. Based on policyholder’s requirement, the annuity payouts are done on a weekly, monthly, quarterly, bi-annually or even annual basis. This kind of scheme is normally provided by life insurance companies.

Deferred Annuity Plans

Under this scheme, the policyholder is required to make regular premium payments over the terms of the policy (also known as the accumulation phase). This scheme has the added advantage of tax benefit. The policyholder will get the return in the form of pension once the accumulation period of the policy is over.

Pension Plans with Life Insurance Cover

This scheme features a combination of life insurance cover along with the annuity payout benefit of the pension plan. In case of sudden demise of the policyholder, there will be some degree of financial security to the policyholder’s next of kin. The policyholder is eligible for annuity payouts if he/she survives the accumulation phase of the plan. This scheme comes under the tax exemption benefit under Section 80C of the Income Tax Act, 1961.

Guaranteed Period Annuity

When compared to other plans, here the insurance companies will issue payouts irrespective of the fact that the accumulation phase is ongoing/completed. In such a scheme, the payouts can be issued in the 5th year, 10th year, 15th year and so on.

Pension Funds

This is a hybrid scheme which combines the best of equity and debt investments. The equity investments help the plan to grow while the economy witnesses a boom, while on the other hand, the debt investment helps the fund to contain the loss during market busts.

National Pension Scheme

Under the NPS scheme, investments are made in various capital market investments such as government securities, debt, and equities with a predefined max and min limit allocated to each category. The returns are not guaranteed since this scheme relies heavily on the market-linked investments. The lump sum amount can be withdrawn at the time of retirement if the NPS account reaches maturity.

However at least 40% of the amount must be mandatorily used for the purchase of the annuities while the rest 60% can be withdrawn. This scheme also comes with tax benefits under Section 80C but subject to various terms and conditions.

If you’re planning for a secure retirement life then starting the investment at the earliest is as important as selecting a good scheme which can offer tax benefits and guaranteed maturity benefits. If you have further queries get in touch with your nearest Vijaya Bank branch for some expert advice today, and start planning for a better tomorrow!

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