Why and how to choose a retirement plan

When taken at the right time it can prove to be your best friend during old age

In several ways, a pension plan is a technique in which an employee or a person transfers part of his or her present income stream towards retirement benefits. Rise in the life expectancy rate, an absence of social security system and rising health costs have made pension plans all the more important in India as it helps in safeguarding the post-retirement phase.

More and more individuals are opting for a pension plan which includes people in the younger age group as well. Retirement planning with a pension scheme provides regular profits to the policyholder in the form of an annuity.

Types of pension plans:

Basically, in India there are four types of pension plans available.

1. Life annuity

It makes sure that the policyholder will receive a predetermined regular income throughout her/his life. The nominee will get the whole sum insured amount in case of the death of the policyholder.

2. Guaranteed period pension

It ensures that a policyholder will receive the predetermined income regularly after retirement and the beneficiary as per stated in the policy document will also receive a guaranteed income for definite years.

3. Deferred annuity

In this type of pension plan the insured can postpone the annuity for a definite period of time hence it does not initiate immediately. The premium payment systems in such a plan are regular annual and single lump sum premiums.

4. Annuity certain

In this form of pension plans the cost of the annuity is paid for a fixed time of period no matter how long the insured lives.

Retirement plan checklist

• Select from among the best pension plans which suit your requirement by comparing various policies or schemes
• It is advisable for you to check if the plan provides required coverage or not. In case of death, the insurer will hand over the amount to the beneficiary and nominee as per stated in the policy document. You must check this feature as well. The beneficiary receives only the net amount of due premiums and expenses
• Check the reviews of plans offered by your insurance company
• The traditional pension plan invests some amount of premium in the government securities and bonds hence they yield low returns. Whereas investing in a ULIP pension policy provides high returns
• You must invest in a ULIP pension plan after checking the various charges that are included in it in the form of fund management, allocation charges, etc.
• Check the fees and deductions that may be applicable to the surrendering system. Basically, it takes place when you surrender the plan before the maturity time in case of emergencies
• Consider the tax benefit provisions in the pension plan under section 80CCC

The government has taken some considerable initiatives for promoting old age income security, like New Pension Scheme, Pension Yojana among others.

It is vital that individuals estimate the benefits of pension plans from the point of view of retirement benefit and should invest in it an early stage. The earlier you buy the pension plan the better will be the benefits at the maturity of the policy.

In India, there are a number of life insurance companies who have a long list of pension plans. You must compare them properly to get the most suitable plan out of these. From the point of view of better stability, most people go for ULIP plans as they combine basic insurance plan with a pension plan, child plan and much more. A pension plan, when taken at the right time can prove to be your best friend during old age.

Illustration: Uttam Ghosh/Rediff.com

Naval Goel is CEO and Founder, POlicyX