A pension scheme in India is a type of fund where you can invest a specific amount of money for the tenure of your employment. This scheme can help you provide a regular source of income after retirement. A pension plan is a safe investment plan that leads to benefit in the future and is ideal for securing financial freedom for you after retirement.
Old age can lead to uninvited physical and mental conditions. And the costs incurred for their treatment along with maintaining living standards can be financially burdening. A pension scheme in India can lead to a comfortable and relaxed life post-retirement. Savings alone may not be enough to pay for your daily expenses, medical bills, and maintaining your standard of living. Therefore, buying a pension plan can be in your best interest.
In this article, let us understand everything about a pension scheme in India, including its benefits.
How Does a Pension Plan Work?
The primary objective of investing in a pension scheme in India is to build a stable and regular income after retirement. It can also be used as a last option in case your savings fall short during emergencies.
You must pay a premium for the pension plans, just like other investment schemes or saving plans. The premium will be accumulated in a fund of your choice over time. When the plan reaches maturity, you become eligible to avail of the pension benefits. You can use these funds in the following three ways: –
- Withdraw all the funds in one go.
- Buy an annuity plan.
- Withdraw the benefits partially and invest the remaining in an annuity plan.
You can also choose to surrender the pension plan with a cancellation fee. You will continue to earn interest on the plan if you surrender after 5 years. As a policyholder, you will be required to buy a deferred or immediate annuity plan in case you choose to discontinue the pension scheme in India before 5 years.
Why Invest in a Pension Plan?
A pension scheme in India plays a significant role in determining the state of your post-retirement life. It’s useful to have some knowledge of these plans to choose the one that offers maximum returns. Here are some reasons you should invest in a pension plan: –
- Guaranteed Monthly Income
Most pension plans in India offer a fixed income upon retirement. Plans such as immediate annuity allow you to receive regular income immediately after making the investment. Depending on the plans, the income can be paid for a fixed period or until death.
- Long Term Investment
A pension scheme in India is usually a long-term plan. And due to the nature of a pension plan, it can help reap high returns. In general, the funds kept for a long period build a high corpus. Investing in a pension plan can ensure a steady income after retirement.
- Multiple Payment Options
Most of the pension schemes in India come with multiple payment options. This gives you the flexibility to pay monthly, quarterly, half-yearly, yearly, or make a lump sum payment. This makes it easy for the policyholder to choose a payment option as per their convenience.
- Tax Benefits
Contributions made under a pension scheme in India are exempted from tax to a maximum of Rs. 1.5 lakh under section 80C of the Income Tax Act. However, withdrawals are not tax-free.
- Vesting Age
Vesting age refers to the point where you start receiving a regular pension. The minimum vesting age under most plans is 40 to 50 years and the maximum vesting age is around 75 years. Based on the vesting age under the pension plan, one can decide when you want to start receiving the monthly pension.
- Surrender value
Surrender value refers to the amount payable to the policyholder when they surrender the plan. This feature is available in pension plans that include life insurance plan benefits as well.
- Death Benefit
A lot of pension schemes in India also come with the death benefit. Under this benefit, the nominee receives a lump sum amount as the death benefit. Pension plans that also cover your life usually have a higher death benefit.
After understanding what is retirement plan, you understand how you can find a pension plan that offers you maximum benefits. You can consider buying a pension plan from Max Life Insurance. They offer this plan at an affordable price and with extensive features.