Pension Plans: Start Early To Ensure Peace Of Mind

Pension plans also known as retirement plans or annuity plans

. A pension plan initially requires you to invest either a lump sum or regular premiums over a period of time in return for a regular payout, either for life or for fixed number of years depending upon the plan. With the average life expectancy in India increasing and nuclear families becoming the norm retirement planning is an important aspect of your financial planning.

The best pension plan will ensure that you are not dependent financially on anyone, once you retire.

Experts believe that people should start planning their retirement as soon as they begin working.

Researching the various plans available in the market and comparing their costs and benefits is the right first step to choosing a pension plan. Small investments made early in life can help in ensuring a retirement income which enables you to maintain your lifestyle even after retirement. Choosing a pension plan is simple as many websites post ratings and list the features of all plans on offer.

The main types of pension plans available are

Deferred Annuity: The pension is not paid immediately but deferred for a period as specified by the policyholder. These plans are targeted at working professional who still have some time to go before they retire. If the policyholder survives the policy term, then the accumulated amount is invested to generate regular income.

Immediate Annuity: These plans can be purchased for a lump sum and assure you fixed payments throughout your life. Insurance companies offer various options under annuity plans. There are different categories of Immediate Annuity plans:

Certain Annuity: The insurance company pays the policy holder a fixed sum of money for a certain number of years. These are limited plans and good for people who have recently retired.

Guaranteed Period Annuity: The plans will pay a pension for a certain number of years as stated in the policy. If the policy holder were to pass away during the term of the policy, then this amount will be paid to nominee till the term ends. This policy is popular with children who buy these for their parents as it if one parent passes away the other parent receives the benefit.

Life Annuity: These plans offer to pay a specified amount regularly throughout the policy holders life. In case of this plan, the nominee will get the maturity amount plus any bonus upon the policy holders death.

Insurers provide two basic pension plan models, endowment and unit-linked. Endowment plans are fixed payout plans and will provide a regular income. Unit linked plans will have their plans linked to fund vale and NAV and could theoretically provide higher returns. In a time of increasing inflation, these plans could ensure that your investment gives you a rate of return that is higher than inflation.

You final pension corpus depends on factors such as administration charges, fund management, market performance.

by: Chris L

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