What are the must-know things while choosing a pension plan for myself?

Rahul was looking to buy a pension plan for himself. He was 42 years old and understood the importance of starting a retirement corpus early on. He did not want to wait till he was too close to his retirement as he knew that would make it difficult for him to build up a substantial fund. So he went shopping for a pension plan. To his surprise though, there were many factors that Rahul found he did not know about the pension plans. It took him a while to do his research and he bought a suitable plan only when he was sure about the clauses of a pension plan.

If you too need some help with the understanding of the pension plans, take a look at this article where we tell you about the main features of the pension plans in India.

Features of pension plans : Things to remember

Take a look at these important features of a pension policies so that you know what kind of plan you must opt for and why.

• Types of annuity : Pension plans offer two kinds of annuity options to choose from. You can have a deferred annuity or an immediate annuity. In a deferred annuity pension plan, you invest small sums of money over a long period of time. The money you put in is saved din a fund and after your retirement, regular payments are made out of this fund. This helps you to have a regular source of income. Deferred annuity plans are very popular types of retirement plans. Immediate annuity plans are types of retirement plans where you pay a lump sum amount of money after your retirement (or when you want the plan to kick in) and you start getting regular payouts immediately after that.This is a good option if you want to invest your retirement bonus or any other large sum of money you may receive and utilise it in your retirement years.
• Taxation : You must be aware of the taxation norms before you buy a pension plan. The premiums you pay on your retirement plans are tax exempted under Section 80C of the Indian Income Tax Act. The income that you earn after the plan matures, however, is fully taxable. So you must keep this point in mind before you invest in a good retirement benefit plan.
• Withdrawal limit upon maturity : If you invest in a deferred annuity pension plan, then you can withdraw only 1/3rd of the accumulated amount when the policy matures. This is important to note as many people expect to get back the entire sum along with the interest component. However, this doesn’t happen in pension policies and you have to buy an annuity plan with the remaining amount. Regular payouts will then begin from the annuity plan and you will get a regular source of income thereafter.
• ULIPs v/s Endowment plans : Most of the pension plans available from the insurance companies in India are either endowment plans or ULIPs. You have to therefore make a choice between the two before you start the plan. If you have a low risk appetite and do not want to risk your retirement fund in any way, it is a good idea to invest in a traditional endowment plan. If however, you want to take a few risks and look to multiply your returns, you could invest in a ULIP. It is safe to do so as you get a death benefit and a sum assured. A part of your funds are invested in the markets and you stand to earn high dividends from them and get more money for your retirement days.

So as you can clearly see from the points mentioned above, the pension plans in India are varied and come with a lot of features. Understand the plans before you invest. This will help you in getting the most out of your pension policy and you will be assured of a financially strong retirement. The post retirement days are the golden days of your life and you must be economically well off to enjoy these days. So rather than depending on anyone else, take charge right away and pave a golden future for yourself.