What are the Features and Benefits of a Pension Plan? - ABC of Money

With the rising inflation levels and low social security initiatives for seniors in India, it’s crucial to think about retirement in advance. You can benefit a lot if you start planning your retirement early. 

What are pension plans?

Pension plans in India offer the double benefit of insurance and investment. When you regularly invest a certain amount of money in your pension plan, you can gradually gather a considerable amount of money. So, in the end, when you retire, you will have good funds to lead a satisfactory lifestyle. 

PPF, or public provident fund, is one of the most popular retirement plans in India. When you contribute to retirement in your early years, you can build huge funds over the years. In addition, the power of compounding can help you in fighting inflation. 

Who should go for pension plans?

Any individual who wants to secure his future through solid retirement planning should invest in pension plans. Section 80 C of the Income-tax Act 1961 has many retirement plans, and you can get tax deductions up to 1.5 lakh. The plan that you choose should be in sync with your investment goals.

Features and benefits that your pension plan should have

  1. Guaranteed pension or income – Pension plans can get you a steady income after retiring or immediately after you start investing, depending on the plan you choose and the way you invest. This gives you financial security after retirement. You can use pension calculators available online to determine the amount you need to invest in getting a comfortable lifestyle post-retirement. 
  2. Tax saving – Few pension plans offer you tax exemption under section 80C. A few examples of such plans are Atal Pension Yojana and National Pension Scheme. 
  3. Liquidity – Pension schemes usually have low liquidity; however, if you want, there are few plans that allow you to withdraw during the saving stage. This ensures that the funds can be used during emergencies without taking bank loans or other debts. 
  4. Vesting Age – It is the age when you begin to get a monthly pension. Most people keep vesting age at 45 to 50 years; however, it is flexible and can be selected up to 70 years. 
  5. Accumulation Duration – an investor can choose to pay the premium in a periodic manner or as a lump sum investment. The money accumulates slowly in a corpus.
  6. Payment period – The payment period is different from the accumulated duration. The payment period is the time in which you receive your pension after retirement. For example, an individual retires at 60 and gets his pension till 75; then, his payment period is 15 years. 

You should consider your current income and fix the amount you want to invest in the pension plans. However, remember to understand the product fully and then decide to invest in it. Do not pick a product just because of the tax benefits.