What You Need To Do For Choosing Pension Plans?
Pension plans ensure financial stability for you during your old age
. However, to attain your objectives, it is essential that you do adequate research, compare various plans on the market and decide on one which serves your interests the best.
Pension is an arrangement to provide people with a steady income when they are no longer earning a regular income from employment. It is way to ensure for ourselves a trouble-free retirement life. You invest small amounts while you are earning and receive the payouts when you retire. It is advisable to begin planning for retirement early in life as small contributions today will grow into large sums over time.
You must define your objectives before you begin looking for a pension plan that suits you. Suppose you want a pension plan for 12 years tenure where you are paid Rs.20,000 monthly pension. It translates into a corpus of Rs.30 lakhs, if the rate of pension is 8%. If you are 48 right now and you want to begin receiving the payout when you reach 60, you need to build a corpus of Rs.2.5 lakhs per annum. It means that you will be required to pay a premium of at least Rs.2 lakhs per annum to build the corpus along with market returns.
Pension plans come in two variants. Traditional pension plans offer a guaranteed pay out while Unit Linked Insurance Plans (ULIPs) invest the premiums in financial instruments which are expected to appreciate greatly over time.
If you prefer plans with returns marked to the market, there are LIC Pension Plus, IDBI Federal Life Retiresurance Milestone Pension Plan, etc. You could also opt for pension plans with guaranteed returns such as IPru Forever Life, IndiaFirst Annuity Plan, etc.
While looking for pension plans, you would come across terms such as Sum Assured, Policy Term, Premium Payment Term, Entry Age, Age at Maturity, Premium, Modes of Payment, Growth Fund, Return Fund, Top-up, Switching, Partial Withdrawal, etc. Some policies may also be available with riders which allow you to further customize your plan.
While shopping for a pension plan, you must also work out what happens if you stop paying the premium, surrender the policy or want a loan against your policy. Most plans will allow withdrawal of a certain amount as tax free benefit and receive pension from the remaining amount on surrender of policy. Surrender benefits are usually payable only after completion of pre-decided term.
Factor in the Death, Maturity and Income Tax benefit provided by a pension plan. Find out if the plan provides the fund value to the spouse/nominee in case of death of the policy holder. Premiums paid towards pension plans up to Rs.1,00,000 are allowed as a deduction from the taxable income each year. The law also allows 1/3 of the Maturity Amount to be withdrawn tax-free.
Your choice of pension plan is going to have serious financial implications on your life and you will serve your own interests doing a detailed comparison of available plans. You can
compare insurance online or use traditional means of calling an agent to explain to you various plans available. However, most people prefer doing the comparison online as it is more convenient.
by: Sukanya Mitra
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