Different Types Of Pension Plans

Gone are those days when the retirement phase was considered a time to hang up the boots and just live out your remaining years in boredom. Most people now have big plans for their post-retirement phase. Plans that require substantial money. This makes it imperative for individuals to make retirement planning and building a corpus for their retirement years a key goal in their financial planning agenda. Due to product side innovation, individuals today can choose from a wide variety of retirement investment products.

Pension plans or retirement plans are types of investment plans that can help individuals accumulate a part of their savings over a long period of time in such a way that these savings eventually become a steady flow of income for them in their retirement phase. Currently, there is a wide range of retirement plans that an individual can choose from basis his idiosyncratic needs.

Insurer sponsored plans that invest solely in debt
Unit-linked plans that invest in a mix of debt and equity
The National Pension Scheme, which can invest 1) 100 per cent in government securities, 2) 100 per cent in debt securities (other than government securities), or 3) invest a maximum of 75 per cent in equity.

Further, these can be divided into 8 major categories of pension plans:

National Pension Scheme – This scheme invests in a mix of debt and equity, based on your individual preference. The individual is allowed to withdraw 60 per cent of the funds at the time of retirement and the remaining 40 per cent is used for the purchase of the annuity. The maturity amount is tax-free.

Deferred Annuity – This allows the individual to accumulate a corpus over a period of time either by paying a single premium or by paying regular premiums over the term of the policy. The pension only begins once the policy term gets over.

Pension Funds - The government body, Pension Fund Regulatory and Development Authority (PFRDA), has authorised six companies to operate as fund managers for pension funds. These funds invest in a mix of debt and equity.

Immediate Annuity - In this type of scheme, the pension begins as soon as the individual deposits a lump sum amount. The annuity amount depends on the amount the policyholder invests. The premiums paid for an immediate annuity pan are tax exempt under the Income Tax Act of 1961.

Guaranteed Period Annuity – This scheme guarantees an annuity for a set period which could be five years, ten, fifteen, and twenty years, irrespective of whether the holder survives the duration of the plan.

Pension Plans with and without cover - Pension plans that come with a life cover provide a lump sum payment to the family member/nominee at the death of the policyholder. The ones without-cover clearly do not offer a life cover while the nominee gets the corpus on the death of the policyholder.

Annuity certain - In this scheme, the annuity is paid for a fixed period of time that can be chosen by the annuitant.

Life Annuity – In this scheme, the annuity is paid to the annuitant until the time of death. In case one has chosen the ‘with spouse’ option then the spouse will continue to receive the pension amount at the death of the annuitant dies.

Since there are so many options available, it is always better to consult your financial advisor and choose the scheme that suits you best.

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