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Basics of Annuity Pension Plans in India

Retirement is a stage which every working individual goes through. It can give rise to anxieties in terms of income and maintaining one’s lifestyle. Hence, a Pension Plan ensures that you receive regular income after your retirement, once the regular work paychecks halt. A pension plan will aid in funding the activities on your bucket list, while also making you financially independent.

An annuity is an insurance vehicle that can be used as a part of retirement planning. You need to invest in the annuity plan, and it makes payments to you on a future specified date. The payments are decided on the longevity of your payment tenure.

Benefits of Pension/Annuity Plans:

  • Regular Income Post-retirement – One of the biggest benefits of a pension plan is that it offers incomes after your retirement. Pension plans help you cover your living expenses post-retirement by offering a guaranteed income. With the array of pension plans available, you can select from one which suits your needs. While some plans give you lifelong income, there are others which provide better returns.
  • Funds at Times of Need – Most pension plans offer lump-sum payments which can meet major expenses throughout your life. Before your retirement, you may have major expenses to take care of like buying a house, funding your child’s education. Before you select a plan, make sure you go over the details of the pension plan, so you know what you will be getting from it.
  • Tax Benefits – Investing in a pension scheme comes with a set of tax benefits which you can avail. Investing in a retirement plan from an early age can help you save significantly on taxes. You can benefit from the tax exemption under the provisions of Section 80C of the Income Tax Act.
  • Insurance Protection – Pension plans also offer insurance cover. This is especially useful to protect in the sudden event of a death following which the family’s income will be taken care of.

How to Choose The Best Retirement Plan?

Before you buy a pension scheme, there are certain parameters you must know.

  • Returns – The most crucial part of any investment is the return it offers. Chose a pension plan only after you have an idea about the returns you would receive. Know that if returns are guaranteed, the rate of returns might be low. Always choose an option which gives high returns.
  • Liquidity – While most pension plans have a lock-in period, there may be some policies available which provide a certain degree of flexibility when it comes to withdrawal.
  • Minimum & Maximum Investment Amount – Various pension plans have different limits in terms of the minimum and maximum investment. Check this before you select a plan so you can set your budget accordingly.
  • Investment Mix – This factor is considered if you choose pension plans which are provided as part of a mutual fund. Look out for the investment mix provided by the pension plan. Usually the schemes are balanced, but they may change over time.
  • Additional Benefits – Retirement plans often has additional benefits like life cover, tax advantage, etc. Find out the extra benefits which several plans offer, before you make your selection.

Retirement planning is the most crucial step towards a relaxed and worry-free second innings of your life. So, make sure you research the plans before buying them.

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Written by shaheen shaikh