InvestorQ : What is the advantage of a pension plan? Why should someone opt for it?
priya Shah made post

What is the advantage of a pension plan? Why should someone opt for it?

3 years ago

This is a very valid question. Everyone should weigh the pros and cons and know, in-depth the advantages and disadvantages of whatever financial product they’re investing or purchasing.

Pension plans are financial tools that allow an individual to save money today in such a manner that the corpus grows to provide for expenses in the future, post one’s retirement.

Here are a few advantages of taking a pension plan:

a. Your money, your investment choice

Pension funds give investors the option to invest in either safe government securities or take some risk and invest in debt and equity investments depending on their risk profile. The risk is balanced by the prospect of higher returns that are generated by the investment.

b. Long-term savings

Pension plans serve as a long-term savings scheme regardless of whether you opt for a lump sum payments or multiple payments of small amounts. The choice of the type of payment is totally up to you and there’s the assurance of savings. Pension plans create an annuity which can be invested further and give rise to a steady flow of cash, post your retirement.

c. Choose the way you want to get paid

Depending on what your age or what your plans are, you can either invest a lump sum amount and get annuity payments right away or you may choose a deferred annuity plan which will let your corpus earn more interest until the pay-outs begin.

d. Pension + insurance

There are pension plans that give the investor the lump sum amount when they retire or in the case of the individual’s death, whichever scenario occurs earlier. This means that when you take a pension plan, you pension policy also serves as a life insurance cover.

e. Negates inflation

A pension plan is a good way of negating the effects of inflation. These plans pay the insured individual a lump sum amount during his/her retirement which amounts to a maximum of one-third of the corpus that is accumulated and the remaining two thirds of the corpus is used in generating a steady cash flow.

f. Accessibility of funds

One can easily make adjustments to his/her pension policy to access a lump-sum payout in case of an emergency. Additionally, this can be done to cover one’s long-term healthcare as well.