Finding the best pension plan requires a little bit of knowledge about the various pension scheme in India before you can actually begin investing. This is important because you need to be sure that a specific scheme is in sync with your financial goals for the future and that you can create a significant post-retirement corpus to help you sail through your retired life.
But for that, you first need to understand the basics of pension scheme in India. In this article, we will help you understand the crux of a pension plan, the types of plans available, along with a few tips to help you in your retirement planning in India.
What is a Pension Plan?
Pension plans helps you in creating a post-retirement corpus by making regular investments throughout the policy period. On maturity, the policyholder gets the pension benefit, and is able to replace his salary with a secondary income that takes care of all living expenses, and other exigencies once a person has retired and stopped working.
Types of Pension Scheme in India
You have a number of choices when it comes to investing in a pension plan, so it’s important to have a brief understanding of the various schemes so that you can choose your best pension plan that’s aligned with your financial goals.
National Pension Scheme
Offered by the Government of India, the NPS is a pension plan that is open for all individuals. So, whether you are employed, or self-employed, you can make regular investments into the scheme to help create a retirement corpus. Since the scheme is backed by the government, it’s considered as a safe investment that yields great results in the longer run.
Deferred Annuity
Under the plan, a person can make either a single of daily premiums to build a retirement savings corpus over the policy period.
Immediate Annuity
As the name suggests, it gives the benefits of immediate annuity by making a lumpsum payment towards the scheme. This is a good way to generate a significant corpus for both people who had made no investments and want immediate benefits, and for those who want to further supplement their existing policies for much greater returns.
Annuity Certain
This pension scheme in India offers regular payouts for a set period. The policyholder has the option to choose the payment duration, and whatever investment has been made towards the plan is offered as a payout to the nominee (s) of the policyholder in case of their untimely passing away.
Life Annuity
This policy remains active as long as the policyholder is alive and offers pension to the spouse in case the policyholder passes away as it comes ‘with spouse’ option.
How to Choose the Best Pension Plan?
Now that we have covered the basics of a pension scheme in India along with the types of plans available to you. Let’s look at a few points on how to choose the best pension plan in India!
1. Keep Your Financial Goals in Mind
Whenever you choose a plan, the most important step is to first analyze the financial goals that you want to achieve. Since every pension plan is unique, it’s best to go in for one that’s aligned with your financial goals to reap the rewards that you expect to achieve.
2. Lumpsum Payment vs Regular Income
Decide if you want a lumpsum payment on maturity of the plan or you want regular payouts to replace your income with a secondary one once you have stopped working. You may also choose a plan where you get certain portion of the savings as lumpsum, and have the rest converted into regular pension that you receive for a set duration.
3. Risk Appetite
Analyze how much you can safely invest in case you decide to invest in market-linked plans. Your risk appetite plays a major role in choosing the types of funds you want to invest in, i.e., higher risk and higher returns, or lower risk and stable returns.
4. Pension Fund Provider
Keep in mind the reputation of the pension fund provider as it’s important to invest your money with someone who has a good repute for stable and guaranteed returns on your investment.
