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Pension Plans

Pension plans are basically known as retirement plans are investment plans that lets an investor invest a part of their savings to accumulate over a period of time and provide them with steady income after their retirement. Even if a person has a good amount of savings done why way of ULIPS, MP and FDs, a pension plan is nevertheless crucial. Savings get exhausted very fast and are sometimes used in emergencies, so selecting the best pension scheme helps you secure your cash flow for meeting basic daily needs post retirement. When you continuously invest in pension plans, the amount grows manifold due to the compounding effect which makes a lot of difference to your final savings fund.

Features of Pension Plans:


The annuity is the most distinctive feature of pension plans and generally comes in two types, immediate and deferred. As its name suggests, immediate annuity starts immediately. The insurance company pays the annuitant the annuity pension plan amount right after the receipt of the lump sum premium. These plans offer the single premium route so that the insurance company can use the amount invested by the annuitant to build up a corpus for him or her. The deferred annuity plans are the normal plans that start paying a certain sum after a few years. The insurance companies offer a diverse range of pension plans for various terms that allow the annuitant to choose the period for which they want to receive the annuity.

Sum Assured

It gives the insured the benefit of being able to provide for his dependents if the worst comes to pass. The sum assured is generally given as a part of the ‘with cover’ pension plans. Such type of retirement pension plans give the mental peace necessary to carry on life without any worries. The life insurance companies in India calculate the sum assured in different ways. For instance, a few of them may offer pension plans with sum assured of say 10 times the premium amount, while others may provide a sum assured that equals the fund value of the policy taken by the individual.

Vesting Age

The vesting age is the age when the investor starts receiving the pension income. Depending on when the policy was brought and the type of premium, the vesting age can be your current age if you opt for the pension plan payment to start right away (immediate annuity – lump sum premium) or after a few years such as 10-15 years. The minimum vesting age for most policies start from 40 years of age but on an average is around 50 years. The maximum vesting age is generally around 70 years, though some insurance companies may offer plans that have a maximum vesting age of 65 years to 79 years.

Accumulation Period

This refers to the period when the premium is being paid by the investor for the pension plans. Some of the best pension plans in India offer the option to the investor to start paying off a part of the premium from any amounts due to be received by them. This decreases the outgo for the investor during the years leading up to retirement and helps them use their money on more urgent matters. However, most pension plans keep the accumulation period separate from the pay-out period. This helps in building up a significant corpus for the investor to receive a pension.

Payment Period:

The payment period, as the name suggests, refers to the period in which the investor starts receiving the payments. This period is generally separate from the accumulation phase and helps the investor to increase his overall retirement corpus

Surrender Value

The surrender value of pension plans is the amount the insurance company will pay the individual if they opt to surrender the pension plan before its due date, and if they have paid the premium for the required minimum period. Though people may need to surrender a plan for various reasons, including not being able to continue with the premium payment or needing the money, most experts suggest not surrendering a retirement plan due to the loss the individual will face. When the insured party chooses to surrender a pension plan, they lose all benefits attached to the plan, including the life cover.

Minimum Guarantee of Pension Plans:

Every pension plan needs to have a minimum guarantee. Each premium paid towards the insurance policy as well as the maturity benefits must have “on zero returns”, as instructed by IRDA. This should be no less than one percent of the premiums paid over the years.Though the minimum guarantee extends to all variable insurance plans, most of the companies offer various types of other pension plans that may offer better returns than the guaranteed plans. This, of course, varies from plan to plan and you should make sure that you pick ones that makes sense to you.

New Pension Scheme (NPS) Benefits

The National Pension Scheme or the New Pension Scheme is a Government of India initiative to give policyholders a pension plan that will take care of them at old age. The retirement planning becomes easier with the new pension scheme as the pensioners receive a pension depending on their contribution towards the pension plan during the accumulation stage.

Investment Option

Investors can choose the investment option that suits them best under the new pension scheme. These options include equity, debt and government securities. The new pension scheme also has an automatic option where the funds are allocated according to their expectations and their age. This automatic option in the new pension scheme opts for riskier investments if the person is young and settles for non-riskier choices as the person advances in age over the years.

Pension Fund Manager

New pension scheme in India offers the investor a choice of different pension fund manager to oversee their investments.

New pension scheme account with a unique number:

The pension makes it easier for people to plan their retirement planning. Each individual who has opted for the new pension scheme is given a Permanent Retirement Account Number or PRAN, that lets him or her track their portfolio from wherever they are. This number is unique for each individual and stays the same for each subscriber throughout his or her life.

Two accounts for more flexibility:

The new pension scheme has a two-tier account structure that gives the investor more flexibility in planning their pension. The first account, also called the Tier I account is one from where the investor cannot make any withdrawal. All the money accumulated by the investors in the new pension scheme is placed in this account and then invested as per their investment choices. The Tier II account of the new pension scheme is one from where the investor can make voluntary withdrawals depending on their needs. The Tier II account of new pension schemes cannot exist without an active Tier I account.

One account to manage throughout your career

One of the biggest drawbacks of provident funds such as the EPF is that it is managed by various state divisions for different states. Going for a job in a new city in a different stage generally means changing the EPF organisation also. This is a difficult and very time-consuming process. All this is avoided by the new pension schemes. People can now change their jobs or relocate to any other part of the country without having to worry whether they will be able to access their provident fund contribution. They can easily access their new pension scheme account from their home and even manage their allocation without having to fill in innumerable forms or stand in long queues in PF offices.

Tax benefits are available for both salaried and non-salaried individuals.