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Govt. & Other Pension Plan
Plans for retirement or pensions include both investment opportunities and insurance protection. You will gradually amass a sizeable sum by consistently contributing a fixed amount to your pension plan. This will guarantee a consistent income once you retire.
One of India’s most well-liked retirement planning programs is Public Provident Fund. When you begin saving for retirement early, the money grows over time to provide you with a stable golden age financially. The power of compounding allows you to outpace inflation with a wisely designed retirement strategy.
Why should we start a pension plan?
Everyone should invest in a pension plan scheme to ensure financial security in retirement. Several retirement plans are covered under Section 80C of the Income Tax Act of 1961, and taxpayers can be eligible for tax deductions of up to Rs. 1.5 lakh. Your strategy must align with your investment objectives (or retirement plans). For instance, your corpus upon maturity should be sufficient to support your retired life if you decide to go to bed early. Therefore, selecting a retirement plan wisely is crucial.
Features & Benefits of Pension Plans
Guaranteed Pension/Income
Depending on your investment strategy, you may get a set and consistent income after retiring (delayed plan) or investing (immediate plan). This guarantees a financially independent lifestyle once you retire. Try a calculator to get a ballpark idea of how much you might need once you retire.
Tax-Efficiency
Some pension plans offer the Section 80C-specified tax exemption. The Income Tax Act of 1961, specifically Chapter VI-A, provides significant tax relief if you want to invest in a pension plan. They are fully described in Sections 80CCC, 80C, and 80CCD. For instance, tax deductions under Section 80CCD are available for the Atal Pension Yojana (APY) and National Pension Scheme (NPS).
Liquidity
Essentially, inadequate liquidity produces retirement plans. However, some programs permit withdrawals even while the participant is still accumulating. Doing this will make it possible to meet financial needs without turning to bank loans or other sources of credit during emergencies.
Vesting Age
You start getting the monthly pension at this age. For instance, most pension plans have a minimum vesting age of 50 or 45 years. Some businesses can set the vesting period as high as 90 years old. However, it can be adjustable up to the age of 70.
Accumulation Duration
The premium can be paid either in regular instalments over time or all at once as a lump sum investment by the investor. Wealth will also accrue over time to make a sizeable corpus (investment plus gains). The accumulating time would be 30 years if you began investing at age 30 and kept doing so until you were 60. This corpus serves as the primary source of your pension for the selected period.
Payment Period
This is frequently confused by those who invest with the accumulation phase. Following retirement, this is the time frame between which you get your pension. For instance, the payment period for someone receiving assistance from 60 to 75 will be 15 years. Although some plans permit partial or done withdrawals during accumulation periods, most programs maintain this distinct from the accumulation period.
Surrender value
Even after paying the required minimum premium, it is not wise to surrender one’s pension plan before it matures. As a final result, the investor forfeits all plan benefits, including the guaranteed amount and life insurance coverage.
Govt. and Other Pension Plan Types in India
National Pension Scheme
(NPS) National Pension System is an optional, defined contribution retirement savings scheme designed to enable subscribers to make optimum finalize regarding their future through systematic savings during their working life. NPS National Pension System seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt to find a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
Under NPS National Pension System, individual savings are pooled into a pension fund. PFRDA-regulated professional fund managers invest as per the approved investment guidelines in diversified portfolios comprising Government Bonds, Corporate Debentures, Bills and Shares. These contributions would spread and accumulate over the years, depending on the returns earned on investments made.
At the same time as the expected exit from the NPS National Pension System, the subscribers can use the collected pension wealth under the Scheme to buy a life annuity from a PFRDA impanelled Life Insurance Company, apart from withdrawing a part of the accumulated pension wealth as a lump sum if they choose so.
Pradhan Mantri Vyay Vandna Yojna
Even after paying the required minimum premium, it is not wise to surrender one’s pension plan before it matures. As a final result, the investor forfeits all plan benefits, including the guaranteed amount and life insurance coverage.
Benefits :
Significant advantages of the Pradhan Mantri Vaya Vandana Yojana (PMVVY) include the following:
- The plan offers an initial assured rate of return of 7.40% for 2020–21, with the rate reset annually after that. The Scheme should offer an assured pension of 7.40% p.a. payable monthly for the Financial Year 2021–2022. All policies purchased through the end of March 2022 will be eligible for payment of this guaranteed rate of pension for the whole ten-year insurance period.
- During the 10-year insurance term, the pension is paid after each period following the frequency of monthly, quarterly, half-yearly, or annual payments selected by the pensioner at the time of purchase.
- The Scheme is exempted from GST.
- Purchase price and final pension installments are payable if the pensioner lives to the end of the 10-year insurance term.
- After three policy years, a loan up to 75% of the purchase price will be permitted (to meet the liquidity needs). Loan interest must be repaid with pension payments, and the loan repayment will be made with claim settlement funds.
- The plan also permits early exit to treat any serious or terminal sickness in oneself or one’s spouse. 98% of the Purchase Price will be returned in the event of such an early departure.
- The Purchase amount shall be paid to the beneficiary in the event of the pensioner’s death during the 10-year insurance period.
- The Purchase amount will be given to the beneficiary upon the pensioner’s passing during the 10-year insurance period.
- The Government of India will subsidize and repay the Corporation for the shortfall resulting from the discrepancy between the interest guaranteed, the actual interest earned, and the administrative costs.
LIC - Jeevan Akshay Plan
The Life Insurance Corporation of India, an Indian life insurance and investment firm, offers an immediate annuity plan called LIC Jeevan Akshay (LIC). It must be acquired with a lump sum payment since it is one premium insurance. The payment schedule for the annuity can be set to monthly, quarterly, biannually, or annually. There are six options available for this pension plan. Once the person selects an option, there is no going back because the payout begins right away under the program.
LIC - Jeevan Akshay Plan
The advantages of the LIC Jeevan Akshay plan are listed below-
Death benefit: Depending on the plan choice selected by the assured, a death benefit is paid.
Benefit upon Maturity: This plan has no maturity benefit.
Income tax advantage: The Scheme provides tax advantages. According to under section 80C of the Income Tax Act, premiums paid under this plan are not subject to taxation.
LIC - Jeevan Shanti Plan
The largest investment company in India is Life Insurance Corporation (LIC), the largest insurance provider. Even after six decades of existence, LIC continues to enjoy popularity and the majority, even though there are currently 28 other insurance firms operating in the insurance industry. LIC offers a variety of investment options with a life insurance component.
At different periods, other people have varied needs for investments and insurance. LIC plans offer many options to meet all its customers’ needs. One of these plans that aids in helping someone plan for a comfortable future are the LIC Jeevan Shanti Policy. Let’s first define an annuity plan to discuss this insurance in more depth.
LIC - Jeevan Umang Plan
Among the well-known names in India’s insurance industry is the Life Insurance Corporation of India. LIC offers various insurance products to meet the customers’ financial and insurance needs. Numerous ground-breaking insurance products launched by LIC have protected people’s lives all over India.
The only and most distinctive “Whole Life Plan” offered by LIC is the Jeevan Umang Plan. The LIC Jeevan Umang Plan is a conventional, unlinked-to-the-market plan that enables profit sharing.
Here are some benefits of LIC – Jeevan Umang Plan:
- Death benefit
- Maturity benefit
- Survival benefit
- Discounts
- Policy Loan
- Participation in Profits
- Rider Facility
- Cooling-Off Period
SWP - Systematic Withdrawal Plan
An investor can use an (SWP)Systematic Withdrawal Plan to take money out of a mutual fund account at regular periods.
With SWP, investors can establish a steady income stream from their holdings. Retirees typically use SWP to support their living needs because it provides a steady income stream.
Investors that need access to their money when they need it can benefit from Systematic Withdrawal Plans. The investors will find it simpler to implement their financial strategies and achieve their objectives.
Benefits of SWP :
- Make the regular flow of income
- A good option for a retirement plan
- Ongoing investment