Want to retire early? Think pension plans

The idea of retirement planning with a pension plan assures regular income to the policyholder in the form of pension or annuity, says Naval Goel.

Illustration: Dominic Xavier/Rediff.com

Normally, the average age of retirement lies between 58 to 60 years. Today, that has changed slightly. Lot of people these days quit or are planning to their 9-to-5 job in their mid-40s or early 50s and spend the rest of their time fulfilling their dreams.

The reason is the availability and fair use of the idea of retirement planning with a pension plan which assures regular income to the policyholder in the form of pension or annuity.

Types of annuities or pension plans:

Life annuity

This plan offers a regular income to individuals or policyholders throughout their life. In case of unfortunate demise of the owner, the total amount is handed over to the nominee.

Guaranteed period annuity

Under this plan, the policyholder will get a fixed income throughout the life of the individual. Apart from this it also offers a regular income to the beneficiary for a certain period of time after the demise of the owner.

Deferred annuity

Under this form of pension plan the owner of the policy defers or postpones the annuity plan up to a definite time period, so it doesn't commence on an immediate basis. The option of premium payment in such plans is regular and lump sum as well.

Annuity certain

Under this form of pension plan, a stipulated amount of the annuity is paid for a definite period of time.

Factors to be taken into consideration while making an investment in a pension plan:

• Compare the premiums across diverse pension schemes after which select the one that satisfactorily fits your requirements.
• Test whether or not the plan is with or without insurance cover. The former offers the sum assured to the nominee in the case of an eventuality, while in the latter case there's no sum assured and the nominee receives an amount of unpaid premiums and expenses.
• Examine the performance of the numerous pension schemes supplied by the insurer.
• A conventional pension scheme invests a significant portion of the premium in government securities (G-Secs) and bonds. Relatively, making an investment in a ULIP plan offers higher returns.
• Investment in a ULIP pension insurance coverage needs to be made after considering the diverse fees like allocation fee, fund management price and many others.
• Take a look at the fees and deductions applicable on surrendering the coverage before maturity in case of emergencies.
• Check for tax advantage provisions. Premium payment under pension plans is eligible for rebate under segment 80CCC.

Also, there are a few plans by the government to promote income protection plans, like New Pension Scheme (NPS). The NPS is regulated by means of the Pension Fund Regulatory and improvement Authority (PFRDA).

It's important that people compare pension plans from a retirement advantage perspective and make investments at an early age.

In simpler terms, the earlier you're taking the step of making an investment in a pension plan, the better retirement advantages you reap on the maturity of the plan.

Naval Goel is CEO and Founder, PolicyX.com