A pension plan is designed to offer the benefits of investment as well as an insurance policy. When an individual with a job invests a fixed sum of money regularly toward a pension plan, they get the chance to accumulate a corpus for their future. The corpus they build over time comes in handy once they retire and serve as a steady income source.
However, to maximize such benefits, one needs to pick the best pension plan in India that aligns with their needs and helps save money for the future for a secure and independent life.
That said, let us learn more about who needs a pension plan and how it can benefit them.
Who should opt for Pension Plans?
Working individuals must consider parking a part of their income in a pension plan to ensure their life after retirement is financially secure and independent.
By doing so, they can accumulate a substantial amount by the time they retire, creating a stream of income for later years. Such a plan allows individuals to continue with their current choice of lifestyle without compromising on its quality.
Most retirement plans are eligible for tax deductions of up to an amount of Rs. 1.5 lakh under Section 80C of the Indian Income Tax Act. This allows individuals to build a retirement corpus without eroding it.
However, the success of such a plan depends largely on the choice of pension scheme they select. Additionally, their chosen plan must align with their financial goals and retirement objectives to produce fruitful results.
This will allow individuals to ensure they lead a financially secure and independent life years after they have retired. In fact, building a solid corpus can enable them to opt for early retirement and lead a comfortable lifestyle after the same.
Types of Best Pension Plans in India
There are different types of pension plans available for individuals today. They can pick a best pension plan in India to make the most of their money based on their needs and requirements.
The best pension plans in India include –
- Immediate or deferred annuity
Immediate annuity plans are usually a single premium plan which starts paying pension almost immediately after the policy has been created.
However, in a deferred policy plan, individuals can select the age at which they wish to receive a pension. Typically, a deferred plan allows individuals to build a corpus through yearly premium payments and benefit from the accumulated interest payment.
- Unit-linked plans or endowment plans
Most pension plans are endowment plans with zero risks and a steady income. However, unit-linked plans are most suited for those with an appetite for risks. ULIP plan also allow individuals to choose the type of funds they want to invest in and avail of the benefits of both investment and pension plans. Both risk and reward aspects are high in the case of ULIPs.
- Plans with or without life coverage
Pension plans without life coverage return the invested money to the surviving dependents. Alternatively, plans with life coverage offer the pre-specified sum assured.
Once you have decided on the type of pension policy you want to invest your money into, you should check a few things to ensure you are picking the right plan.
Factors You must Consider to get a Suitable Pension Plan
These factors are key to picking a pension plan that lets you make the most of the policy scheme:
- Monthly expenses
Factor in your daily and monthly expenses when planning your retirement. This will help ascertain the corpus you need to build to lead a comfortable lifestyle and cater to your expenses post-retirement. However, your aim should be to generate an income that is sufficient to meet expenses and to account for sudden expenses or requirements.
When computing monthly expenses, be careful not to base the same on your current expenses. This is because the rate of inflation could jump when you retire, leaving your accumulated funds insufficient for your lifestyle choices. That said, make sure to factor in inflation to build a safety net against the same and cater to your lifestyle choices with much ease.
- Life expectancy
While it is not possible to predict how long one will live, one can at least choose to build a retirement corpus that lasts then for a long time. Running out of money in old age can hamper their quality of living standard and financial independence. Today some pension plans extend payment throughout the policyholder’s life, while some pay only for a specific period. One should opt for a type of policy based on one’s needs and requirements, especially the payout structure.
- Rate of interest
The rate of interest accompanying pension plans tend to vary. Since the rate of interest plays a key role in helping one build a corpus, it is recommended to pick a plan with a lucrative rate.
Additionally, they should compute how much they expect to earn from a pension policy in their retirement to determine which plan meets their expectation. Use a premium calculator to understand how interest affects the premium and corpus.
- Major expenses
Individuals should weigh their major personal expenses and goals while planning their retirement. They should opt to make provisions for big expenses, say, purchasing a house, paying for children’s higher education, or marriage so that their limited retirement amount doesn’t erode. Additionally, they must make provisions for medical expenses so that you can attend to them comfortably in case of an emergency.
- Assets and loans
Individuals must also remember to factor in their existing loans and current assets when planning their retirement. Loan repayment post-retirement can erode the corpus for your retired life, which is why you should plan your repayments so that you pay them off before you retire.
Regardless of when you choose to retire, factor in these pointers and keep the information in your mind when looking for the best pension plans in India. Make sure to compare the features and limitations of pension plans to opt for the one that best matches your retirement goals.