Finance

Things to know before buying Pension Plans

The common man is most vulnerable to get affected with rising inflation and uproar in the economy. Being one of the common men you have grown up hearing about pension plan from your parents, relatives, colleagues or friends. 

But what these plans actually mean? Why are they so important? What’re the types? How to avail them or there may be endless doubts in your mind regarding a pension plan. Here’s your guide for availing the best pension plan in India, along with certain facts to be considered in order to ensure the right plan at a pocket-friendly rate.

Facts of Best Pension Plan in India

A pension plan can be your best bet when it comes to securing your sunset days. However, to ensure the right plan, the only mantra is to know about the product thoroughly. In this regard, here’re some facts of the best pension plan in India:

  1. Know the Accumulation Period

    Accumulation period is the time when you buy your pension plan until the time you retire. During this time frame, the premiums paid towards the pension plan are invested in certain avenues. You can enjoy some tax benefits on your premiums u/s 80C and 80CCC of the Income Tax Act.

  2. Buying Annuity is a Must

    As per the norms of your pension plan, you’re entitled to withdraw only 1/3rd of the money that has been accumulated. The rest of the amount has to be invested in an annuity. Based on the interest rate of the plan you have chosen, you will be given a monthly pension.

  3. The Plans are not Flexible

    Once you select a plan you will have to stick to it for a particular year. That means here flexibility suffers. A pension plan is a long-term investment scheme, where premature exit can be difficult. This is a negative point which makes it difficult for you to change your investment halfway or to settle your asset in an emergency.

  4. Pension Plans offered by the Insurance Providers

    Mostly, insurance companies offer pension plans. These can be categorised into Endowment plans and ULIPs. While in a traditional endowment plan the corpus is invested in debt such as govt. bonds, securities, the returns will generally lower.

  5. The Tax Implication

    The contributions made towards these plans are tax-exempted as per the Section 80CCC up to a maximum ceiling of Rs. 1.5 lakh. It includes the amount used on buying a plan or renewing an existing pension plan. Both residents and NRI may claim tax benefits. However, HUF category is not eligible to avail this benefit.

  6. Withdrawal Clause

    The withdrawals under a pension plan are not tax-free. Only a 1/3 portion of the corpus given to the retiree is tax-free. The rest of the amount is utilised in an annuity and also subject to a tax deduction as per the prevailing tax laws.

Benefits of Investing in Pension Schemes

Some of the advantages of investing your money in Pension Plans are:

  • Develop an Investment Habit

    This plan helps you develop the habit of savings. It allows you to invest in government schemes, which are safe. Moreover, by taking a little risk you can also invest in debt and equity investments analysing your risk appetite. If the money is invested in equity the risk is balanced by the prospect of higher returns.

  • Pension Plan offers Long-term Saving Opportunity

    These plans come with long-term saving options, no matter you opt for a lump-sum payment or multiple payments of a small amount, your saving is safe. Moreover, these plans create annuity, which can be invested again to increase the flow of income once you retire.

  • Flexibility of Choosing the Option to Get Paid

    Based on the age or the plan type, you can either invest a lump sum amount and avail annuity payments immediately or you can choose a deferred annuity plan and let your corpus to increase.
  • Performs as Life Insurance cover

    There are plans that give you the dual benefit of investment and life cover. God forbid, in case of your sudden demise, the policy will offer the death benefit to the dependent family. This way your pension policy also serves as a life cover.

  • Good Option to Bet the Growing inflation

    Pension plans help you negating the impacts of inflation. These plans help you save for your retirement days where expenses continue to rise due to health issues or no flow of income. An amount of 1/3 corpus can be accumulated and can be withdrawn where the rest of the amount can be invested in annuity and leave for generating cash flow for the future.

  • Flexibility to Access a Lump Sum in case of Emergency

    You have an option to make adjustment of your pension plan by availing a lump sum payout in case of an emergency.

  • Helps You Build Financial Discipline

    One of the amazing features of these plans is that they help you build financial discipline in your life. As non-payment of premium could be an expensive affair, people usually don’t tend to miss the renewal date to stick to a budget-friendly plan. You also learn to manage their expenses according to the preference.

  • Tax Benefit

    Buy buying a pension plan at an early age, you can save a considerable amount on tax as per the Section 80CCC of the Income Tax Act.

Hence, don’t waste your time. Plan for your retirement days today and reap its benefits in the long run!

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