With increased life expectancy and cost of living, securing financial life at retirement has become the need of the hour. India is a country wherein the age-old family-based support system is slowly disappearing, and people are looking for all sorts of ways to secure their post-retirement life. The pension plans and annuities must rank the highest as one of the sure-shot ways to achieve this very objective.
What Are Pension Plans?
Pension plans are a form of long-term investment products intended to save for one’s old age and convert the savings into a regular post-retirement income stream. The major objective of pension plans is to be able to offer monetary security and reassurance when one ceases to earn an active income.
How Do Pension Plans Work?
Pension plans work in two phases:
● Accumulation Phase (Contribution Phase): You are regularly contributing to your pension plan on a monthly, quarterly, or annual basis. Contribution to your pension plan flows into a particular financial instrument such as stocks, bonds, or mutual funds depending on the architecture of that specific pension plan.
● Annuity Phase (Withdrawal Phase): After retirement, this money is placed in an annuity that pays you an agreed-upon amount of money on a monthly basis for the rest of your life or over a certain number of years.
The most attractive characteristic of pension plans is that they will pay you a regular stream of income, regardless of how long your life is after retirement.
What is an Annuity?
An annuity is a product that provides an assured income for a fixed number of years or for the lifetime of the annuitant, the person buying the annuity. The annuity is bought either through a lump sum amount or through periodic contributions.
There are various types of annuities:
● Immediate Annuities: They begin paying off right after the premium is paid. Best for people who require their money to start coming in immediately after retirement.
● Deferred Annuities: They allow investment over a certain period, and their payout is received later. It is best suited for those wishing to accumulate their corpus at retirement end.
● Fixed Annuities: With fixed annuities, you receive an assured amount of payment over a fixed period or during your lifetime. They are stable and predictable.
● Variable Annuities: These are actually pegged with investment. That means the payment in a variable annuity is variable, depending on the performance of the underlying assets. As they give you potentially better growth, they also imply more risk.
Why Do People Need Pension Plans and Annuities for Retirement?
As life expectancy increases, most people will spend more years in retirement than previous generations. Retirement can become a time for leisure and the pursuit of hobbies; however it also might be a period when income decreases and health-related costs may increase. Pension plans and annuities can offer various benefits in securing your future:
● A Steady Income Flow: Pension plans and annuities offer a fixed, steady income, so you are not relying on savings or investments when retirement-related disbursements occur. For that reason, this type of stable income helps maintain the lifestyle you want when you are no longer generating any other income-generating activity.
● Risk Protection for Longevity: One of the greatest risks facing you in retirement is the danger of outliving money. Since pensions and annuities can be structured to create lifetime income, they help to reduce that risk, ensuring you will not outlive your savings, no matter how long you live.
● Tax Benefits: Pension plans enjoy tax benefits, being covered under Section 80C of the Income Tax Act. Therefore, a person can claim deductions on the contributions made by them toward a pension plan. In exactly the same manner, corpus formed under pension plans attracts tax benefits upon maturity, after due adjustments for the prevalent tax laws.
● Investment Flexibility: Most pension plans offer you a menu between equity-linked funds and debt options that are much safer. This way, you will be able to calibrate your investments with their risk and payoff horizons.
● Protection Against Inflation: Most annuity products make your money truly work for you because they provide inflation-indexed payouts while most annuities come with fixed payments. This will keep your retirement income in line with inflation and protect your purchasing power over time.
Best Pension Plans and Annuity Plans in India
Now that we have an idea of how pension plans and annuities can secure your retirement, it is time we see some of the best pension plan in India and annuity plans available in India.
Best Pension Plans in India
● HDFC Life Pension Super Plus: HDFC Life Pension Super Plus is the ULIP which provides flexibility through varied options of investment funds so the policyholder may choose according to their risk preference the investment strategy. It allows changing the premium amount and also partial withdrawal if required.
● ICICI Prudential Easy Retirement: The ICICI Prudential Easy Retirement is a Traditional Pension Plan where there are guaranteed additions to the corpus of the policy, meaning retirement savings increase over time. There is flexibility in terms of premium paying and payout options.
● SBI Life- Saral Pension Plan: SBI Life, through its Saral Pension Plan, provides a Non-linked, Non-participating Pension Plan with a single premium or limited premium paying option and flexibility in premiums. The sum is paid out as an immediate and deferred annuity option, where you make the choice of when you start receiving income.
● Bajaj Allianz Retirement Plan: Bajaj Allianz Retirement Plan is a Unit Linked Pension Plan that offers you options of various attractive fund options to invest in, keeping you in complete control of your portfolio. It ensures partial withdrawals are possible after five years, hence having liquidity when required. The plan also allows one to opt for annuity purchase at maturity so that one can have steady income post retirement.
Best Annuity Plans in India
● LIC Jeevan Akshay VII: LIC Jeevan Akshay VII is an Immediate Annuity Plan. This offers a range of annuity options with assured pay-outs to the annuitant. The annuity plan from this investment provides fixed payments in lieu of a one-time premium paid in lump sum.
● HDFC Life Pension Super Plan: HDFC Life Pension Super Plan is an Immediate Annuity that guarantees monthly income post retirement. Here, this plan provides a range of annuity options and joint life annuity, which would ensure absolute financial security for you as well as your spouse, the plan promises to be one of the most selling plans available for those who are retiring and are looking for surety income in old age.
● Star Pension Plan: Star Pension Plan is an Instant Annuity, wherein you can get flexible annuity options for life with or without return of corpus. This plan demands a minimum purchase price of ₹ 50,000.
Conclusion
With the rising life expectancy and changes in family structures in modern times, planning retirement is more pertinent than ever. Pension and annuity plans provide an all-powerful solution for securing your financial future. They provide a stable, long-term income stream, protecting you against the risk of living longer than your savings might last. As long as you invest early and select the appropriate pension or annuity scheme, you can have peace of mind once your old age arrives.
