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A to Z of the Best Pension Plans in India

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Pension plans are an important aspect of financial planning as they help individuals secure their post-retirement life. In India, various pension plans are available in the market that cater to the different needs of individuals.

For Non-Resident Indians (NRIs) living in the United Arab Emirates (UAE), purchasing a pension plan in India can be a wise financial decision. This is because as NRIs, they may not have access to the same social security benefits as Indian residents, and, therefore, may need to plan for their retirement independently.

Additionally, the favourable exchange rate between the UAE dirham and the Indian rupee means that NRIs can benefit from investing in a pension plan in India. In this article, we will explore the different types of pension plans available in India, their benefits, and why you should consider purchasing a pension plan in India.

An Overview of Pension Plans

Pension plans, usually referred to as retirement plans, offer investment opportunities as well as insurance protection. These plans assist you in converting a portion of your investments into an ongoing, long-term income. You can get a long-term, reliable income stream by investing in pension programmes.

In an emergency, your savings may be depleted extremely quickly. As a result, you must pick the best pension plans in India to ensure that you will always have the cash flow to cover your living expenses once you retire.

Best Retirement Plans for 2023

The following table lists the best pension plans in India -

Pension Plans in India Entry Age Maturity Age Tenure Annuity Payable
Aditya Birla Sun Life Empower Pension Plan 25 to 70 years 80 years 5 years to 30 years
  • Minimum - INR 18,000 per annum
  • Maximum - No Limit 
HDFC Life Click 2 Retire 18 years to 65 years 45 years to 45 years 10, 15, or 35 years
  • Minimum - INR 24,000 per annum
  • Maximum - No Limit
IndiaFirst Life Guaranteed annuity plan 40 years to 80 years Not Available Lifetime
  • Minimum - INR 1,00,000 
  • Maximum - No Limit
Kotak Premier Pension Plan 30 years to 60 years 45 years to 70 years 10 years or 30 years
  • Minimum - INR 1,00,000
  • Maximum - No Limit
LIC New Jeevan Shanti Pension Plan  30 years to 79 years 31 years to 80 years Not Available
  • Minimum - INR 1,50,000
  • Maximum - No Limit

Why Should You Opt for Retirement Plans in India?

Given below are the major benefits of retirement plans in India -

  • Long-term Savings - You will be able to benefit from multiplying against your investments as these programmes are for the long-term. Additionally, these plans make sure that you have a healthy corpus by the time you retire so that you have sufficient funds after retirement.
  • Protection Against Inflation - Your assets are better protected against inflation if you invest in a pension plan. After retirement, this plan distributes a third of the total funds and pays the investor a monthly annuity for the remaining two-thirds.
  • Enjoy the Benefits of Compounding - Many people believe that investing a portion of our income will enable us to create a retirement account that is adequate. However, they forget to take into account the increase in inflation or any potential financial crises. With the compounding in retirement funds, however, you can have a sizable retirement corpus developed that beats inflation and covers your major requirements.
  • Offers Multiple Options to Invest - Both the payment method and the method of receiving the payout from pension plans are flexible. You have the option of investing a large sum and receiving monthly annuity payments or investing in a deferred annuity programme that will continue to earn interest until the payout period starts. As an investor, you are free to make a decision based on your requirements with these plans.
  • Protection for the Future - You can avoid having to sell off assets to cover your post-retirement costs by investing in retirement funds. This is because pension plans offer adequate funding to cover those costs and other major expenditures.
  • Some Plans Offer Insurance Cover - Most pension plans function as a form of life insurance. Additionally, they offer protection from any monetary losses in the event that the policyholder passed away before retiring. Additionally, a lump sum payment can be taken for treatment in the event of a medical emergency. 

Major Types of Pension Plans in India

Depending on whether you are employed on a salary, own your own business, or practise a profession, your retirement savings will vary. When it comes to financial planning, the "one-size-fits-all" idea is ineffective. From the several fund kinds available, you can pick a pension plan that best suits your circumstances and is customised to help you reach all of your objectives.

Discussed below are the types of pension plans in India -

  • Deferred Annuity - With one premium payment or recurrent premium payments made during the policy term, you can build up a corpus for your retirement. You will begin earning a pension after the policy's tenure is over. Keep in mind that you cannot withdraw money from the locked account in case of an emergency. Due to the availability of a regular premium option, this pension plan is appropriate for salaried employees.
  • Immediate Annuity - You start collecting a pension right away under this arrangement. In exchange for a lump sum payment, you start receiving an annuity based on your investment. Under this plan, you have a variety of annuity alternatives to select from. In case the policyholder passes away, the nominee will still receive the pension throughout the policy's term.
  • Pension Plans with Life Cover - Most pension plans provide life insurance protection with an annuity option, where the beneficiary will get the benefits if the policyholder passes away. The main goal of this plan is to provide the retiree with a secure pension. In addition, life insurance provides financial security for the spouse in the event of the policyholder's untimely death. Your contributions to these kinds of pension funds contribute a small amount to the risk cover.
  • Guaranteed Period Annuity - As per the versatility of the plan you have selected, you may receive an annuity in India for a fixed time that is a multiple of 5, such as five years, ten years, fifteen years, or twenty years. A key benefit of this is that the nominee would continue to get the annuity that would help them achieve their financial objectives even after the life assured passes away.
  • Annuity Certain - You get the annuity under this kind of pension arrangement for a predetermined period of time (for instance, between the ages of 60 and 70). The named beneficiary will get an annuity until the policy's term is over in case the policyholder passes away prior to the maturity date of the policy. These pension plans assist you in achieving your retirement objectives, which will eventually enable you to have a worry-free life after retirement.
  • Life Annuity - If you select a life annuity plan, you will keep receiving your pension amount throughout your lifetime. If the option "with spouse" is selected, the spouse remains eligible for getting the annuity even when their partner passes away. This type of plan presents one of the best strategies to safeguard your partner's financial future, particularly if they are unemployed. In case something were to happen to you, building an economic buffer will help your partner deal with their daily requirements.
  • Pension Funds - They are long-term investments with relatively larger returns as they mature. The Pension Fund Regulatory & Development Authority (PFRDA) oversees these pension funds, and only six fund institutions in India are now permitted to sell pension funds. You have the option of investing a large sum or smaller sums - either way, pension funds will provide you with a reliable income after retirement.
  • National Pension Scheme - The Indian government utilises this scheme as one of the two kinds of pension programmes available in India. Depending on your risk tolerance, you can choose from equity and debt funds for investing in. At retirement, you are permitted to take out up to 60% of the corpus, with the remaining 40% going toward the annuity's purchase. The two types of NPS accounts are corporate models and all-citizen models.
  • Employee Provident Fund - Another form of pension scheme supported by the Indian government is the EPF, with the EPFO overseeing its regulation. Both HUF investors and people on salaries can use this programme, which has 10 to 12 per cent as its current rate. You must contribute a specific amount of your base salary to the EPF - the same is true for your employer. You can get the total amount invested in addition to the interest rate whenever you retire.
  • ULIP Investments - ULIPs provide a great way to combat inflation while generating solid returns from capital market investments. These strategies work well for methodically building sizeable retirement accounts. The fund types in your ULIP can be chosen based on your risk tolerance and fluctuations in the market.

How Does a Pension Plan Work?

Read the following example to understand how a pension plan works in India -

Let's say you're 35 years old and want to retire when you're 60. You predict that you will require INR 45,000 each month to support your current standard of living after retirement.

As a result, you must create a fund within the following 25 years that produces earnings of INR 45,000/- every month. The function of a pension plan is to establish a fund in this manner - you routinely contribute a set amount, and your capital increases via investments.

You can take a certain amount of the accrued funds out at retirement. You receive a predictable, consistent income during your retirement years from the leftover funds.

Who Should Buy the Best Pension Plans in India?

Every person needs to invest in a pension plan and make financial plans for their post-retirement years. You can choose a pension plan even if you are in your early 20s. Note that you are also qualified for tax deductions of up to Rs 1.5 lakh if you have a pension plan regulated by Section 80C of the Income Tax Act of 1961.

You should pick a pension fund from the various varieties offered in India if any of them meet your demands and goals for retirement. For instance, you need to accumulate enough corpora if you wish to retire at age 50 and live comfortably in retirement. In this case, going with a growth-oriented pension fund type can be a wise decision.

Why Should You Start Your Retirement Planning Early?

Retirement may still feel far off when you are in your 30s or 40s. You would need to put other things first, including saving for a house, getting a car, repaying off student loans, and putting money down for your kid's college education. However, there are several advantages to beginning retirement savings early.

Here are some reasons to start your retirement planning early -

  • It is Easier to Start Planning Early - It is usually easier for you to begin saving for retirement if you are young. This is mainly because young people have greater financial independence and fewer responsibilities. As time goes on, it is only natural to take on responsibilities that can make it harder for you to save for the future.
  • Get the Benefit of the Power of Compounding - Gaining interest on interest is what is known as Compound Interest in plain terms. To actually witness the power of compounding, you can simply invest the funds and keep them there for an extended period of time. The best way to go about this is to get started early and make regular investments. Compounding may help you build your retirement corpus by the time you reach retirement.
  • Opportunity to Make Aggressive Investment Choices - Typically, the investments with the greatest potential rates of return also have the highest levels of risk. In general, the more youthful you are, the greater the risk you can assume with your investments in your retirement account. This is because you will have more time to make up for any losses. In general, it is best to switch to a more cautious approach as you move closer to retirement. Riskier decisions can result in bigger potential profits, but they can also cause significant value changes. When putting together your investment portfolio, it is critical to consider your own risk tolerance.
  • You Can Retire Sooner - You may choose to retire earlier than the typical retirement age of 60 to 65 once all of your financial obligations have been paid off and you have saved enough money. You might achieve your retirement objective sooner in life if you comprehend the significance of retirement planning and put an investment strategy into practice. Many retirees continue to pursue hobbies or new jobs that they were not able to do while working a 9 to 5 job. More freedom and versatility in your later years may result from your early commitment to saving for retirement.
  • Higher Flexibility - If you still have a significant amount of working life left, you may have more freedom to decide whether to buy a ULIP, a non-participating retirement savings plan, or both. Additionally, the start date of the retirement plan benefit can give you an estimate of the sum that you may receive.
  • Enables You to Face Emergency Situations - Life has many wonderful aspects, one of which is its capacity for surprise. Some of these might not stick in your memory. On the other hand, if you begin planning ahead of time, you can be prepared for any emergency. By starting young, you will have enough time to put money aside for an emergency fund.

Top Hacks of Retirement Planning

When someone eventually says goodbye to their career after decades of dedication, retirement is one of life's crucial stages. Professionals eagerly await this moment, when, after years of labouring and managing duties, they can finally take full use of their family time. However, retirement also has its share of monetary problems and unforeseen expenses. A strain is placed on the current savings and investment returns when there is no consistent monthly income.

Self-employed people are not exempt from the scope of retirement, and just like their paid counterparts, they will also inevitably experience the strain of a retired life provided they have well-arranged their funds.

If chosen wisely, however, investments done earlier in life can significantly increase the likelihood of financial independence in retirement. 

Let’s have a look at some significant retirement planning strategies -

  • Increase the Investments as the Income Increases - Selecting an investment plan that generates returns as and when needed is crucial, especially in the initial stages of life. There is a point in the career graph where the amount of money invested can be raised. Any time your wages improve, you must always raise your investments.
  • Start Retirement Planning Early on in Life - With India’s rising cost of living, people can easily become more and more financially squeezed without proper planning. As a result, it is imperative to start making investments in your future right away as you begin to make money. The term buildup and the subsequent payoff at the point of investment maturity are higher than the younger the person is when relegating assets to a retirement investment.
  • Assign a Fixed Portion of the Income towards Retirement Corpus - Investing a set portion of income into the primary retirement fund is usually beneficial. Additionally, you must take care to avoid using any corpus—the principal amount—prior to retirement.
  • Make Sure You Invest in Health Insurance and Specific Plans Simultaneously - Start early when it comes to establishing the financial safety net in case of emergencies because you may not be in the best of health in your later years. By doing this, you can prevent medical emergencies from affecting your savings and investment returns.
  • Keep Inflation in Mind - It's crucial to try to invest and increase that investment. However, the reality that inflation has a significant impact on financial planning must never be discounted or disregarded.

You must ensure that you are taking the projected future price increases into consideration when choosing any plan because inflation can cause your returns to drop dramatically.

Things to Consider When Buying a Pension Plan

With so many kinds of pension plans, choosing the best retirement plan as per your requirements is crucial. Here are a few things to consider when buying the best pension plan in India -

  • Determine your retirement age, your financial objectives, and the amount of money you wish to receive after retiring. By calculating your projected monthly expenses (post-retirement), you may determine the total amount you will need. The cost will depend on a variety of things, including whether or not you live in your own home or rent, the kind of place you plan to retire to, and others.
  • You should choose the monthly investment amount based on your present earnings and the amount you hope to reach in the future. So if you are not prepared to put up the necessary amount of money at first, you can begin investing with a sum that you feel comfortable with and gradually increase it as your income rises.
  • Carefully examine the available plans, look at the advantages when they mature, and select the ones that fulfil your financial objectives.
  • Choose to make an investment in a plan that suits your objectives after reading every word of the agreement and understanding the product.
  • Do not acquire a pension plan simply because a friend is purchasing a similar plan or because someone urged you to. Your friend's demands and objectives may not be the same as yours.
  • In case you give up the plan before it matures (assuming the requisite amount of payment has been paid), the insurance provider will give you the surrender value. All of the advantages provided by your pension plan are lost when you surrender it. You should review the conditions pertaining to the surrender requirement.
  • Different pension plan types may provide you with various payout schedules. According to your objectives, the annuity's commencement date and the term should both be specified.
  • The most distinguishing aspect of an Indian pension plan is its annuity. If you recently retired and want to invest a large sum to begin receiving a pension, you could require an immediate annuity.

In the deferred alternative, you can invest a large sum or make recurring payments, and the pension begins after a predetermined number of years. If you intend to purchase a pension plan, narrow down your options depending on the annuity provided and the premium the company will charge for the annuity. Choose the two that work best together.

FAQ's

Q1. What is the function of a pension plan?

Ans: A pension plan is an advantageous investment product if you plan on keeping a portion of your money aside for your post-retirement life.

Q2. What is the maximum monthly pension that you can earn in India?

Ans: According to the Government of India, the maximum limit of the monthly pension is 50% of the top-paid income per month. The pension is paid till the date of the pension holder’s death.

Q3. How can you calculate the retirement corpus in India?

Ans: You can use an online pension calculator to estimate the retirement corpus that you would receive during your retirement years. The calculator takes factors like current living costs, inflation rate, retirement age, and your estimated life expectancy into consideration for the calculation.

Q4. What is the entry age for the best retirement plans in India?

Ans: You can start investing in a pension plan in India as soon as you start earning. The earlier you invest in a pension plan, the more corpus you would be able to build by your retirement age.

Q5. Do you still need a pension plan if you already have a provident fund account?

Ans: A provident fund is generally never enough for building a retirement corpus. It is because the gradually increasing inflation rate will reduce the worth of the funds you accumulate in the provident fund. Investing in a pension plan, thus, becomes essential as you are vulnerable to facing health problems as you grow older.

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