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How to choose a Best Pension Plan in India?

How to choose a Best Pension Plan in India

One can have regular income before 60 years of age However, after retirement, income would stop, however, expenses would continue for the rest of the life. Like in other countries, there is no social security system in India, hence it is important to plan for retirement ahead of time and consider a best pension plan. In this article we would details on How to Choose a Best Pension Plan in India?

What is a pension plan?

Pension Plan is the scheme where one can invest lumpsum or at regular intervals and get the pension income after pre-defined period.

The pension plan is different from annuity plan. Pension plan helps you to accumulate money while the annuity plan provides regular pension income after specific period, which can be opted by the individuals. Hence one should understand different pension plans in India.

Let me explain with an example.

Mr. Eswar is aged 50 years of age and want to invest Rs 10,000 per month for the next 10 years for retirement purpose. He would take an appropriate pension plan. After 10 years, he would get the pension income every month.

Let me give you another example.

Mrs Rajani aged 36 years want to invest 1 Crore lump sum. She considers immediate annuity plan and invests this 1 Crore. She would get regular pension income immediately from next month onwards.

Benefits of taking Pension Plan

Regular flow of income at retirement age or after pre-defined period.

As per world bank, life expectancy is increased to 68.78 years, which is almost increase of 10 years in the last 20 years. Higher the life expectancy, higher the amount needed post retirement.

In other countries, there is social security system where one can get income when all sources are disrupted. However, in India, there is a lack of such social security schemes. These are evolving slowly in India now.

Rise in inflation would reduce the rupee value. The cost of goods and services are increasing every year. Hence, having a pension income would help you to meet regular expenses to some extent.

Healthcare costs are skyrocketing. Post retirement, any unexpected medical costs can eat away corpus available. Hence, having a pension plan post retirement would take care of medicines or regular hospital expenses that might be needed.

How to choose a best Pension Plan in India?

You should consider a few pointers before opting for a pension plan in India.

#1 – Immediate income

If you are looking for immediate income, opt for immediate annuity pension plans. Under the immediate annuity plan, one should invest a lump sum and pension income would start from the immediate next month. These are best suitable for either senior citizens who have accumulated corpus and looking for regular income or individuals who want to invest a lump sum and expect regular monthly income.

#2 – Income after specific period

If you do not need any money as of now, however willing to invest some money regularly and expect pension after a few years, then one should consider deferred annuity plan. Under this plan, investors can invest monthly for a specific period and pension income would start after this period. If you are 40s or 50s and expect pension income after 10 or 20 years, you can opt such deferred annuity pension plans. These are like guaranteed pension plans.

#3 – Pension Plans with or with life insurance coverage

If you want to take pension plan, however, would like to have life insurance too, you can opt for pension plans that provide risk coverage. This would be useful especially when your spouse is dependent on you for monthly / regular expenses. However, such pension plans come with additional costs. If your spouse is not dependent on you, better to opt for pension plan without life coverage.

#4 – Accumulate in the government scheme

If you are worried about safety of your investment, consider investing in National Pension Scheme (NPS). This is a government backed retirement scheme where one can invest as low as Rs 1,000 in a financial year and accumulate wealth till 60 years of age. The returns would depend on the scheme chosen (government bonds, corporate bonds, equity etc.,). Post retirement one can withdraw 60% lump sum and for the balance of 40%, one should take annuity plan. Annuity plan would help you to get regular pension income.

Which Pension Plan is suitable to you?

This would depend on how you want to invest your money and your needs. If you are looking for safety, invest in government schemes like NPS and opt for debt segment. If you have lump sum today and looking for immediate pension income, choose immediate annuity schemes. If you expect to retire in next 10-20 years and want to accumulate wealth till such time, deferred annuity scheme or NPS scheme could be better.

Suresh KP

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