InvestorQ : What are the different types of pension plans available in India?
Manisha Mehta made post

What are the different types of pension plans available in India?

Answer
user profile image
2 years ago


Indian insurance companies offer a wide variety of pension plans to all those who want to start planning and preparing for their retirement well in advance. These plans offer a sense of peace, comfort and security to the insured individuals once his/her career or years of being employed cease.

Here are the various pension plans offered by different insurers in India. Let’s have a look here:

· With cover and without cover pension plans: These pension plans can have a ‘life cover’ in the ‘with cover’ pension plans. The insurance company pays a lump sum amount to the insured’s family, post death of the insured. The cover value is not really high in the ‘with-cover’ option. However, the ‘without-cover’ pension plans do not offer life cover. Only the premiums paid along with interest declared by the insurer will be paid to the nominee on the death of the insured.

Deferred annuity: In this pension plan, you can pay for your insurance premiums either in a single premium or through regular premiums. The pension commences once the policy term completes. An insured individual enjoys good tax benefits. In fact, the funds are tax-free unless you plan to withdraw during an emergency.

· Immediate annuity: In this pension plan, the individual’s pension begins immediately after the insured individual deposits a lump sum amount. The pension, however, depends on the amount invested as lump sum. Under Income Tax Act, 1961, the premiums an insured individual pay are exempted from tax. The beneficiary gets a compensation in case of the death of the insured depending on the annuity option chosen.

A few annuity options available under pension plans are:

Annuity certain or guaranteed period annuity: Here, the annuitant is paid an annuity for a certain number of years like five, 10, 15, or 20 years and thereafter for life if he survives. The annuity for the fixed years would be however paid to the beneficiary, if the annuitant dies before exhausting all the payments during the fixed years.

Life annuity/life annuity with spouse/life annuity with return of purchase price: Here, the pension is paid until death to the annuitant. However, in case of death of the annuitant, the pension amount would be paid to the spouse, only post selecting the “with spouse” option. Under the return of purchase price option, the annuity purchase price is paid to the nominees of the annuitant.

National Pension Scheme (NPS): Here, you can invest money in pension which would be further put into equity and debt market as per your choice. Around 60% of this amount you can withdraw on retirement and 40% can be utilized to purchase annuity. Remember that the amount you receive on maturity is NOT tax-free.