Retirement is a phase of life most of us look forward to, working for a good number of years in order to rest and relax when we retire. While this period is meant to be one without tension, financial issues could dampen this time. Lack of adequate planning could see one working even after retirement to make ends meet.
This is where an Annuity/Pension plan comes into play. Just like a traditional life insurance policy provides financial support to the family of an insured after his/her demise, a pension plan provides the insured a regular source of income even after retirement. In essence, it is a plan which covers the risk of losing your income post retirement, compensating for any drop in earnings by providing annuity.
It is ideal for individuals looking to supplement their retirement corpus, wherein insurers offer plans which typically require a single premium to be paid upfront, with the policy providing returns after one retires. One can choose the age at which they wish to receive this amount, thereby having solace in the fact that the policy will cover their financial needs as long as they live.
The frequency of payments can be chosen according to the needs of an insured individual, with certain plans offering a gradual increase in the amount paid, doubling as an investment.
There are over 20 insurance companies which offer pension plans in India, with a number of options available. These plans cater to different requirements, ensuring that one finds a plan which meets their retirement goals. Listed below are the top 5 pension plans in India as of 2017.
|Pension Plan||About the plan||Entry Age||Vesting Age||Policy Term||Annual Premium Amount||Sum Assured|
|LIC Jeevan Nidhi Plan||A deferred annuity plan which provides additional bonus, it offers multiple pension options. Bonus is accrued after the 6th year, with the premium paid eligible for tax exemption under the Income Tax Act.||Minimum: 20 years Maximum: 58 years (regular premium), 60 years (single premium)||Minimum: 55 years Maximum: 65 years||Minimum: 5 years Maximum: 35 years||Minimum: Rs.10,000 for single premium, Rs.3,000 for regular premium||Minimum: Rs.1 lakh (regular premium), Rs.1.5 lakh (single premium)|
|SBI Life Saral Pension Plan||A plan which offers guaranteed bonus ranging between 2.50% and 2.75%, it also provides an option for life cover through riders.||Minimum: 18 years Maximum: 60 years (regular premium), 65 years (single premium)||Minimum: 40 years Maximum: 70 years||Minimum: 5 years (single premium), 10 years (regular premium) Maximum: 40 years||Minimum: Rs.7,500 Maximum: No upper limit||Minimum: Rs.1 lakh Maximum: No upper limit|
|HDFC Life – Click2Retire Plan||An online pension plan which secures the retirement of an individual through assured vesting benefit. Being a unit linked plan it invests in funds which meet certain growth requirements||Minimum: 18 years Maximum: 65 years||Minimum: 45 years Maximum: 75 years||Minimum: 10 years Maximum: 35 years||Minimum: Rs.24,000 Maximum: No upper limit||Based on premium|
|LIC Jeevan Akshay VI Plan||An immediate annuity plan which provides pension immediately after paying the single premium.||Minimum: 30 years Maximum: 85 years||Pension is paid immediately, depending on the option chosen by the buyer||NA||Minimum: Rs.1 lakh Maximum: No upper limit||Based on premium|
|ICICI Pru-Easy Retirement Plan||A unit linked plan which provides an assured benefit to help meet financial requirements after retirement.||Minimum: 35 years Maximum: 70 years||Minimum: 45 years Maximum: 80 years||Minimum: 10 years Maximum: 30 years||Minimum: Rs.48,000 Maximum: No upper limit||Based on premium|
|Reliance Smart Pension Plan||This is a non-participating unit linked plan which offers a regular source of income after an individual retires.||NA||Minimum: 45 years Maximum: 75 years||Minimum: 10 years Maximum: 30 years||NA||Based on premium|
|Bajaj Allianz Pension Guarantee Plan||This is a non-linked, non-participating plan which provides immediate annuity to individuals, with an option to choose between 6 payout modes.||Minimum: Varies based on the payout mode chosen. Ranges from 0 years to 37 years. Maximum: 80 years||Varies based on annuity option chosen||Lifetime||Minimum: Rs.25,000 Maximum: No upper limit||Based on premium|
|Max Life Guaranteed Lifetime Income Plan||This is a non-linked, non-participating plan which offers a lifetime pension to policyholders.||Minimum: 50 years Maximum: 80 years||NA||Lifetime||NA||Based on premium|
|Birla Sun Life Empower Pension Plan||This is a unit linked non-participating plan which offers a death benefit in addition to annuity.||Minimum: 25 years Maximum: 70 years||Maximum: 80 years||Minimum: 5 years Maximum: 30 years||Minimum: Rs.18,000 Maximum: No upper limit||Based on premium|
|HDFC Life Assured Pension Plan||This is a unit linked plan which is suited to those looking at an investment cum protection plan.||Minimum: 18 years Maximum: 65 years||Minimum: 45 years Maximum: 75 years||Minimum: 10 years Maximum: 35 years||Minimum: Rs.24,000 Maximum: No upper limit||Based on premium|
Insurance companies offer a range of pension plans in India, and while each is unique in itself, one can classify pension plans into these 7 broad categories:
It is easy for one to overlook the fact that retirement brings with it financial strain. We work for a majority of our life hoping to lead a stress-free retired life, but lack of money could see one coming out of retirement to make ends meet. A good pension plan ensures that one is financially secure during retirement, with the plan providing a steady inflow of funds.
Old age is often associated with increased medical expenses, which can be a strain on financial resources, especially when one is retired. While those with a government job would receive regular pension, this might not be sufficient for the daily needs. A pension plan can enhance this income, ensuring that one doesn’t have to make changes in their lifestyle.
Additionally, pension plans can offer decent returns on investment, ensuring that inflation doesn’t reduce the value of one’s money. Certain pension plans also provide life cover, wherein the family of the insured is protected in the event of his/her demise.
The biggest factor which warrants the need of a pension plan is the peace of mind which it provides, ensuring that we can have a peaceful and fulfilling retired life without the strain of finances on our head.
Some of the popular features of pension plans are highlighted below:
Listed below are the benefits/advantages which pension plans provide:
Choosing a good pension plan is critical to plan for retirement. Given the number of options available, one might get confused and opt for a plan which doesn’t conform to their needs. Listed below are a few simple points to consider before choosing a pension plan.
Most pension plans do not have strict eligibility criteria, with insurance providers concentrating on three main aspects when it comes to pension plans:
It is possible to enhance the protection offered by a pension plan by choosing additional riders. Listed below are some of the popular riders which can be availed in the country.
A participating pension plan is one in which the insured receives a bonus component in addition to the regular sum assured. This could be in the form of a reversionary bonus, which is at the discretion of the company. It is basically a plan which participates in the profits of the fund in which the money is invested. The insurance company has the discretion to supplement the sum assured with any bonus in these plans.
A non-participating pension plan is one which does not accrue any reversionary bonus, with all benefits clearly stated to the policyholder. It does not partake in any profits earned by the fund.
Public Provident Fund (PPF) is an initiative of the government of India which aims to inculcate the idea of savings in the country. It incentivises individuals to open an account by offering interest which is compounded annually. The current interest rate stands at 7.9% per annum.
A PPF account can be opened with an initial minimum deposit of Rs.100, with the maximum yearly deposit capped at Rs.1.5 lakh. Individuals who open this account need to deposit a minimum of Rs.500 each year, failing which a penalty will be charged.
A 15 year tenure makes it ideal for anyone looking for a retirement corpus after this period. One can also choose to extent it by 5 years. The key benefit of this account is that it provides tax benefits, with the interest earned being tax-free, in addition to tax saving on the investment.
One can choose to open this account either at post offices or authorised banks, with the option to transfer it between branches.
The Directive Principles of State Policy state that the government shall try its best to ensure that citizens of the country have means to meet basic requirements, including those arising out of old age. As such, the Employees’ Provident Fund Organisation was set up to monitor the Provident Fund Scheme and a Pension Scheme, in addition to an insurance scheme.
The Employees Provident Fund (EPF) and Employees’ Pension Scheme (EPS) are designed to provide financial assistance to individuals during their retired life. They act as a savings tool, whereby employers and employees contribute a certain portion of their monthly income into a pool, with this investment earning interest.
EPF applies to any organisation which undertakes a task under Section 1 of the Employees’ Provident Fund Act, and employs over 20 people. Both the employer and employee make a contribution equivalent to 12% of the basic DA of an employee’s salary. This contribution is split into two components, with one going to the EPF pool and the other to the EPS.
|Scheme||Employee contribution||Employer contribution|
As indicated in the table, both the funds now get a certain deposit each month. The only difference between both of them is the fact that while the EPF account earns an interest which is compounded annually, there is no provision for interest under EPS.
It is possible to withdraw the money under EPF if one is unemployed for a period of two months or more. One can also appoint a nominee who will receive the funds in the event of death of EPF accountholder.
The Pradhan Mantri Atal Pension Yojana is a scheme designed to offer retirement solutions to individuals belonging to the unorganised sector. With a majority of the Indian population working in unorganised sectors, there was a need for a pension plan for them. Anyone between the age of 18 and 40 years can participate in this scheme, with them receiving a pension once they are 60 years old.
Individuals who joined the scheme before December 31, 2015 will be eligible for a government co-pay wherein the government will contribute an amount equivalent to half the contribution of the individual, subject to a maximum of Rs.1,000 per year for a period of five years.
A savings bank account should be opened by the individual looking to contribute towards this pension scheme. One will receive a pension ranging between Rs.1,000 and Rs.5,000 per month after retirement. The scheme provides a provision for a nominee, wherein he/she will receive the pension if the accountholder dies.
The National Pension System (NPS) was launched by the government in 2004 with a vision to provide a pension to all retired citizens of the country. Open to employees from both, the government sector and private sector, it invests the money in funds which are managed by the Pension Fund Regulatory and Development Authority (PFRDA).
One can choose between two account types, namely a Tier-1 account, which is designed to promote savings for retirement and a Tier-2 account. Individuals cannot withdraw any money from a Tier-1 account, ensuring that they have a corpus for retired life.
A Tier-2 account, on the other hand permits one to withdraw money from it. It is designed to promote voluntary savings.
The National Pension System offers a range of benefits to those looking for steady pension after retirement. Some of them are highlighted below:
A. The age from which the pension is paid is called the vesting age. The vesting date is the date from which the pension starts. For example, a policy with a vesting age of 60 years will begin paying pension only after the individual turns 60 years old.
A. Annuity is a defined amount of money paid to an individual at regular intervals of time, typically after he/she retires. An annuity plan is a contract between the insurer and the insured, wherein the insured makes payments to the insurer, with the insurer providing regular payouts after a specified period of time.
A. Yes, most insurance companies provide the option to purchase a pension plan online. There are a few pension plans which can be purchased only online.
A. Most pension plans do not provide the option to modify the payout amount after the plan has been purchased. An insurer can, however, make exceptions based on the rapport a customer shares with them. It is advisable to check this with the insurer before purchasing a policy.
A. Most pension plans do not offer the liquidity to withdraw money before the vesting age. This could vary from plan to plan and one should check this with the insurer before buying it.
A. Both schemes are designed with a specific purpose in mind. One should consider the purpose before choosing one. Government pension schemes are primarily targeted to those who have no other means of income after retirement. These are more affordable but have limitations on the amount one can receive. Pension insurance plans, however, provide one an opportunity to customise a plan based on their requirement.