Before going for a pension plan you should know why it is necessary for you to opt for one. Here is why having a pension plan is a must:
- Rise in Life expectancy rate: The life expectancy recorded in the year 2017 in India was 68.78 years as per the World Bank. The life expectancy rate has increased by 10 years almost in the past 20 years. Higher the life expectancy, higher will be the amount needed at the time of old age or post retirement.
- Lack of Social Security System in India: Unlike other countries, India lacks a social security (Social security means, measures taken by the Indian Government or the governing body. These measures are typically taken to provide income to the individual or his family when all sources are disrupted). India lacks in schemes and programmes which will look after the benefit of the disabled as well as retirements etc.
- Rising health costs & inflation: With rise in the life expectancy of people in the country, there has been a tremendous rise in the health cost. Medications, hospitalization prices are just soaring day by day. Inflation affects our economy badly. So much so that the cost of the daily goods and services has increased over a period of time. Having a pension scheme will definitely ease some tension and provide a financial security in your post retirement phase.
- Regular flow of income: A pension or a retirement plan assures you a flow of regular income after your retirement. You may then be able to lead a comfortable as well as a relaxed lifestyle. Certain traditional plans offer you bonuses too.
- Tax benefits: It is always advisable to buy a pension plan at an early age. Doing so will also give you tax benefits under the provisions made by the Section 80C of the Income Tax Act.
Now let’s find out how to choose best pension plan in India. Below are the most commonly used pension plans in India. In order to choose the most efficient one, it is important that you know the different plans in the market and choose the one as per your requirement.
Immediate Annuity: In this plan one has to invest a lump-sum amount and the pension payments will start immediately.
Deferred annuity plans: These plans let you accumulate a large amount through regular or single premiums over the terms of the policy. The pension will begin once the accumulation period of the policy term is over. This type of plan also has a tax benefit to it
Plans with and without life cover: With life cover: The ones with life cover have a life component in it. In case of death under such plan, a lump sum amount is paid to the family members. Without life cover- This implies that there is no life cover and only the premiums paid or amount invested is returned to the nominees. The money returned may or may not be with interest.
National pension scheme (NPS): In this scheme, one can save for the retirement by investing in equity and debt market as per their preference. 60% of the amount can be withdrawn at the time of maturity and 40% must be used to purchase an annuity plan.
Now that you know the kinds of pension plans available in India, you must not wait much longer. Select a pension plan and invest in it as soon as you can.