Planning for your life after retirement is a crucial thing that you must start early in your life. This is because an individual and their partner may often face variations in income, and may often end up not having a reliable income source during their retirement years.
The difficulty faced by many, however, is how to prepare for retirement while ensuring that they (and their dependents) may live a carefree life without making any sacrifices.
This is where pension plans step in. These plans offer you a consistent source of income so that you can take care of the living expenses post your retirement. Continue reading the article below to find out all the relevant details about one time investment pension plans, their types, features, and more.
What is One Time Investment Pension Plan?
Also known as single premium pension plan, a one time investment pension plan is one where you would need to make a single lump sum premium payment for the entire plan tenure. With this, you can have a regular source of income or a single payment payoff at the conclusion of the policy term, which you can use to cover your post-retirement obligations. Keep in mind that the post-retirement income and others will depend on the type of your pension plan and the rules and criteria outlined therein.
Types of One Time Investment Pension Plans
Numerous varieties of one time investment pension plans exist in the market, with each plan having unique features. There are two basic groups into which these plans can be divided –
- Traditional Single Premium Plans - These one time investment pension plans are also known as regular or non-linked plans. They provide you the opportunity to select the schedule of annuity payments as per your preferences, which is one of the key benefits of these one-time investment pension plans. Pension payments can be made on a monthly, quarterly, semi-annual, or annual basis here. Additionally, these plans are not linked to the market, meaning that your premium will not be put into the stock market.
Your money is invested in secure assets like government and corporate bonds, as these plans' primary goal is to guarantee return stability. As the returns are known and are provided throughout the plan tenure, the non-linked plans are more stable. These plans can further be divided into –
- Deferred Annuity – These are the annuities that defer the money to be obtained until after the premiums have been paid. These plans are delayed annuity plans, where the insurer consents to pay you the agreed-upon sum at a later time. One year is the bare minimum waiting time.
- Immediate Annuity – With this type of plan, you will need to make only one payment into your annuity with the fee being paid all at once. At the moment of payout, this lump payment is added to a stable revenue stream. Keep in mind that the payment begins immediately in this case.
- Unit Linked Pension Plans – These programmes are market-related, with your investment in such unit-linked plans being placed in market assets like stock, debt, and more. These retirement options are ideal if your goal is to build long-term wealth and you possess sufficient risk appetite.
The last point is necessary to emphasise, as these plans are riskier because they are reliant on market performance. This risk, however, is accompanied by the potential for larger returns over time as well.
Unit-linked pension plans allow the option to pick the asset or funds in which your earnings will be invested with these options. As a result, you can adjust your plan to suit your tastes and level of risk tolerance.
You can also choose to obtain a part of the premiums paid by you under these plans as a lump sum payment at the conclusion of the policy period. However, you would be required to spend the balance of your premium payments to buy an annuity plan. As an alternative, you can buy annuity plans with full maturity bonus profits.
How Does One Time Investment Pension Plan Operate?
A one time investment pension plan works in the following manner –
- At the end of the policy period, you get the option to receive a portion of the amounts you pay under these policies as a lump sum payout. However, as discussed earlier, you must purchase an annuity plan with the remaining premium instalments. Another option here is to purchase annuity policies with the entire maturity bonus income.
- Pension plans can often be purchased after the age of 40. You can, therefore, make plans to accumulate this sum by the time you retire or to become ready if you are not yet qualified for purchasing.
- At the age of retirement, the pension plan will begin disbursing the built corpus as a stable revenue stream. You would be required to decide between an instant annuity and a deferred annuity depending on your age.
- While you can choose a short-term income, the lifelong income option is preferable if retirement income is your central goal and this plan is your only source of income.
- The post-retirement income from a joint life annuity is guaranteed for both you and your spouse. However, you can choose a single-life annuity if you are single or your partner already has a different pension plan.
Features of One Time Investment Pension Plan
The following are the features of one time investment pension plan –
- You have to invest your money only once
- You can choose between lifetime earnings or continue receiving the income only for limited duration
- Some plans also offer riders like cover for critical illnesses like cancer and more
- One can opt for a joint life pension with their partner so that their spouse continues to get the income
Benefits of One Time Investment Pension Plan
The following are the advantages of one time investment pension plan –
- No obligations are required after the initial deposit, as the one time investment pension plan can be funded with the maturity funds from a retirement fund
- The additional life insurance pays the individual’s partner and any other family members who are financially dependent with a lifetime pension
- The investments in the plan are completely protected from changes in the market. As a result, you can be confident that you will receive the guaranteed monthly pension for the chosen time.
- In the event of a crisis before the pension comes in, you can also use a loan from the policy if you choose a deferred annuity option.
Documents Required to Purchase a One Time Investment Pension Plan
Before getting a one time investment pension plan, you need to go through a verification process. For this, you would require the following documents –
- Filled in application form for one time investment pension plan
- Address proof
- Bank account details
- Medical history records
- Identity proof like Emirates ID and passport
Tips to Purchase a Suitable One Time Investment Pension Plan
To choose an appropriate one time investment pension plan, consider following the tips mentioned below –
- Check the Minimum Entry Age – You can make an investment early and let it grow till retirement if the minimum entrance age is met
- Look for Bonuses – The rate of growth of your investment money is accelerated by bonus increments. These bonus additions, however, may be unconditional or dependent on certain conditions.
- Duration of the Pension – Several one time investment pension plans provide a pension only for a short time, say, 10 years. A life pension plan would be a preferable option for you if you want to be free of the stress of investing every few years after retirement.
- Guarantee of Pension Payment – You ought to look into the pension plan's investing strategy, particularly during the pension era. Plans that provide long-term pension guarantees often only place the money in secure investments.
- Mode of Payment and Investment – The investing strategy of your preferred one time investment pension plan should also be investigated, especially during the pension period. Plans that ensure long-term pension benefits frequently only invest in safe assets.
- Look for Add-on Covers – Critical illnesses can nullify the impact of even the best-laid plans in old age, when the majority of life insurance plans do not offer you cover for health. Thus, you should look for add-on covers related to old-age ailments and requirements as well.
- Joint or Single Life Cover – If an individual is married and their spouse depends on them for finances, it would be better to get a plan that covers their requirements after the individual’s demise. In such cases, a pension plan with combined life insurance will be a suitable option.
Your search for the best one time investment pension plan can be completed once you have all these qualities checked in. However, as mentioned in the points as well, take note of your specific requirements before making an investment.
- A single lump sum premium payment is all that is required for the duration of a single premium pension plan or a one-time investment pension plan. After the policy term, you may be eligible to receive consistent income or a one-time payout that you can utilise to satisfy your post-retirement needs.
- Unit-linked pension plans and conventional single premium plans are the two types of one-time investment pension plans. The conventional single premium plans can also be divided into an instant annuity and a deferred annuity.
- One of the primary advantages of these one-time investment pension plans is the ability to customise the timing of annuity payments in the standard single premium plan. The frequency of pension payments might range from monthly to quarterly to semi-annual to annual. Moreover, as they are also not connected to the stock market, there would be negligible scope for volatility concerning your investment.
- Market-linked unit-linked pension plans are also available, where market assets such as stocks, debts, and more will be used to hold your investment in your unit-linked plan. These retirement options are great if your objective is to accumulate long-term wealth.
- The advantages of a one-time investment pension plan are plenty. You only pay one premium for the entire transaction, get the option to add riders to the policy to provide additional coverage and make it a more comprehensive plan, and more. Additionally, in case of an emergency, you can use a loan from the policy if you choose a deferred annuity option, even before the pension kicks in.
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