Everyone, in the course of their life, needs to think about investing their money in pension plans. Pension plans are also known as retirement plans and are insurance plans which are meant to help working individuals during their time of retirement and old age. Pension plans are those plans which take a long amount of time for accumulating enough funds for the same.
The right type of pension plan follows a particular scheme for investment. The amount of money that needs to be invested over how long depends on the type of pension plan that the individual himself/herself chooses. It is advisable for everyone to invest wisely in the correct pension plan for a secure future.
Types of Pension Plans in India
There are a number of pension plans that are available in the market. The type of plan that a person chooses is what decides the life of an individual after retirement. Pension plans can be divided into a number of categories depending on a number of factors. Some of the types of pension plans that exist in the market include:
- Immediate Annuity –The pension for this plan begins immediately. An individual is required to deposit a great amount of money for the pension to start immediately. There are a number of annuity options that an individual can choose from.
- With Cover and Without Cover – The “with cover” plan has life insurance cover included in the plan itself while the “without cover” plan does not include life cover. In the “with cover” the entire family of the policyholder is awarded the pension money after the death of the policyholder while in the “without cover” offers the entire money to the nominee of the policyholder.
- Life Annuity – In this, the pension plan for the individual is paid on an annual basis while the amount for the pension is also deposited on an annual basis. The “with spouse” option in this plan allows the policyholder to give the entire amount of the pension to the wife.
- National Pension Scheme (NPS) – This is a plan that was introduced by the government for those individuals who are seeking to get a pension plan and saving up for the same. This plan allows a withdrawal of 60% of the savings at the time of retirement and the rest 40% can be used for the purchase of an annuity. The maturity amount for this plan is completely tax-free.
- Deferred Annuity – This is the most preferred pension plan as it allows the individual to deposit money in regular premiums over long periods of time. Once the insurance plan is over the pension for the individual begins. No tax levied on the money that the individual invests into the policy.
- Annuity Certain – In this policy, the annuity is paid to the annuitant for a specific period of time. The period for paying the annuity can be chosen by the individual. If the individual dies before the exhaustion of payments for the annuity, then the entire amount is paid to the successor.
- Guaranteed Period Annuity – This pension depends on certain periods which are guaranteed by the company. The periods depend on 5, 10, 15 or 20 years. The duration of the pension remains the same irrespective of whether the individual lives or dies.
- Pension Funds –There are six companies that are fund managers. Pension funds are those policies that are meant to last an individual for a lifetime. For the purpose of pension plans to last a lifetime, the Pension Fund Regulatory and Development Authority has developed pension funds.
Features of Pension Plans
Each special pension plan has their own set of characteristics that make them different from the rest of the pension plans that are there in the market. However, there are certain characteristics that remain the same for all pension plans.
There are two types of annuity that are given through pension plans, immediate and deferred annuity. An immediate annuity is given to the individual as soon as they have applied for a pension plan while deferred annuity gives the amount after a few years.
The sum assured from the pension plans are dependent on the amount of money that the individual invests in the plan itself. This money is exempted from all taxes from the government as it is given in the form of pension coverage. The sum assured to the individual can be either given to the individual after the retirement of the individual or can be withdrawn under certain circumstances.
The vesting age for pension plans which is the age at which the individual starts getting a pension from their pension plan is different for different pension plans. The vesting age can be either the current age of the individual or the assumed at which the individual shall receive retirement. The minimum age for vesting starts at the age of 40, but the average age is 50 years for the same.
The payment period for the pension plans also differ. The payment for the period is the period of time where the individual gets money from their pension plans. The surrender value of a pension plan is the amount of money that the insurance company will pay the individual before the due date for paying pension amount.
Each and every pension plan that is given out from companies come with a guarantee to the buyer of the plan. The guarantee assures that as long as the policy conditions stand, money in the form of pension will be paid to the individual or to their successor. The pension plan assures that the entire money that an individual is investing over the years will be given back without any taxes or extra fee being deducted from the amount.