Pension Plans: The Way To An Independent Future

The word ‘retirement’ means different things to different people. It is a bookend to a life spent working hard. But you must be financially stable to be able to lead a life of peace and security in your retirement years. Taking a pension plan is one way of ensuring future financial stability.

What are pension plans?

Also known as ‘retirement plans’, they are life insurance policies that invest your paid premiums so that your money is accumulated over time. Once you retire, the plan ceases to vest any more money and you can enjoy the accumulated corpus for your daily needs. Leading insurance companies have a wide range of pension plans in India.

You can choose to invest in pension plans, market-linked plans and guaranteed returns plans based on your investment horizon and risk appetite. The best pension plans in India are annuity plans, deferred annuity plans and ULIPs.

Why do you need them?

The idea of retirement might seem remote to a younger person like yourself. Today, you enjoy a steady income from your job, but what happens to your goals and lifestyle after you retire and a regular income stops? You might have a savings fund built up steadily over the years. But you might need to use those savings for other expenses, like an urgent medical procedure, getting your child admission to a foreign university, getting your child married, investing in a second car, and so on.

After retirement, a pension plan offers you regular pay-outs or a lump sum payment that help you run your household expenses, pay the bills, or even take short trips with your spouse. It ensures complete financial independence in the retirement years. You do not need to depend on your children or close relatives for your wellbeing when you have a good retirement plan to care for your needs.

Buy a retirement plan today — don’t wait for later

Most people (mistakenly) believe that one can push retirement planning for later. However, it is better to start your retirement planning as early as you can, because –

ü It gives you a headstart on planning. The longer your time horizon, the more the range of options open to you. Thus, you can use the power of compounding to grow a large retirement corpus for yourself and your spouse.

ü It is easier to save small amounts early in life and continue the practice for years, instead of allocating larger amounts of your income when you are older.

ü Leaving retirement planning for later is dangerous if you consider that the average lifespan of every Indian has gone up over the last few decades. Today, people live easily up to even 85 years of age. Now imagine that you retire at age 60 and live for 25 or 30 years from then on — will you be able to sustain your lifestyle without sufficient resources? And will you be able to create a large fund for yourself in a short time? The shorter your vesting period, the tougher it becomes to amass a large amount of money for retirement.

ü It is easier to start saving money for your pension plan premiums when you are younger and do not have too many demands on your income. In a few years, it becomes second nature to set the premium money aside towards the retirement plan, despite having many more financial responsibilities in your 30s and 40s.

ü You can enjoy tax benefits on the premiums paid under Sec 80C of the Income Tax Act, 1961. There are other tax benefits against the income from the pension plan, depending on the type of plan you have purchased (market-linked or guaranteed returns).

How to buy the right pension plan

Do not err in choosing the best retirement plan. We tell you how to do it right:

· Choose the plan from a leading insurer in India. They will have a wide range of plans with multiple benefits in line with your future goals.

· The plan corpus must account for future inflation, increase in living costs by the time you retire, the lifestyle you expect to maintain, future responsibilities (children’s marriage, medical treatment in your old age, spousal support in your absence, etc.)

· Apart from choosing the plan corpus and an affordable premium, select the plan based on charges and expenses that come with buying and maintaining the policy. Ultimately, the plan should be economical and not a burden on your pocket.

· Once you find the right retirement plan, you can buy it online on the insurance provider’s website. Do use the online calculators provided to find out the sum assured vis-à-vis the premium payments and any other benefits you choose (as ingrained in the policy). The insurer guides you about the documents you need to submit with your application, and if a medical test is required.