Also known as retirement plans, a pension plan is one, that lets you invest a part of your savings. In essence, it is an investment plan that helps you receive your accrued savings as a steady income after retirement. Also, we know that savings get used up in case of emergencies. Therefore, it is necessary to select the best retirement scheme that will help you maintain a steady flow of cash.
Also, regularly investing in pension plans helps you grow your initial savings amount. Therefore, you must always carry the necessary research before planning for your retirement.
Advantages of Retirement Plans
- Long-term savings: A pension plan helps you make regular long-term savings by limiting the amount of money you can spend. The amount submitted as pension gathers over time to create a steady income after retirement.
- Insurance Cover: Most retirement plans come along with an insurance cover to protect the family income in case of any sudden event. Therefore, most insurance companies provide life insurance cover along with retirement plans.
- Easy Access To Money:In most pension plans nowadays, you can withdraw a part of the total amount as a lump sum after maturity. It mainly helps when you are looking forward to building your own house after retirement. Moreover, the lump-sum amount withdrawn is completely non-taxable!
- No Investment Risk: You should not worry at all before investing in a pension scheme. It is because, of the rules of the government of India. Due to it, the rise and fall in the pension market cannot affect the payouts of a subscriber.
Moreover, you will receive a regular pension even when the company that you work for becomes bankrupt. It is because the Pension Benefit Guarantee Corporation is responsible for your payouts.
Pension Plan Disadvantages
- Difficult Future Predictions: We all know that financial markets face ups and downs. Therefore, it becomes difficult to tell when a sudden low in the market will eat up your pension returns.
- The Last Loses: The earnings in a pension plan are on an accrual basis. As a result, someone investing in it at the age of 18 will benefit more. While someone investing at the age of 35 will benefit less.
- Tax Liability: The regular income that you create using a pension scheme, is chargeable. Consequently, an essential portion of your pension earnings goes to the government as tax.
Types of Pension Plans
We can classify a pension plan based on its structure and the benefits it offers.
Therefore, the various types of plans are:
- Immediate Annuity: In this type of policy, the pension begins immediately. However, you need to deposit a lump-sum amount. Also, the premiums paid are excused from tax.
- Deferred Annuity: Deferred annuity plans let you grow your savings by paying multiple premiums. Moreover, after maturity, the subscriber can retrieve the amount either as a lump sum or as regular income.
- Life Annuity: In this scheme, the subscriber receives the pension until death. However, after death, the person’s spouse or nominee gets the money.