Retirement Pension Plans

February 14, 2011   ·   0 Comments

Lesson 8: Pension Plans

 

A pension plan helps you to regularly invest your savings during your earning stages of life in order to build up a retirement corpus to take care of your post retirement needs. On retirement when there is limited source of income you can withdraw upto one-third of the Accumulated Account, which is tax-free and for the balance amount, you can buy an annuity.

Pension plans are getting more and more important in these times of uncertain job security and mid-life career shifts. It is important because you have your earning years to provide yourself with a regular income during your retirement years.

 

You can refer this link to know more about financial planning and power of Regular Savings: Power of Regular Savings

 

Different Types of Pension Plans:

 Insurers provide two basic pension plan models .

  • endowment and
  • unit-linked.

 You final pension corpus will depend on a lot of factors such as administration charges, fund management, market performance and such like. The idea is to choose an insurer and product where you maximize your corpus while paying out minimum in the extraneous charges

 

What are the Tax benefits one enjoys with pension schemes?

When one opts for pension scheme he enjoys tax deduction on the premium paid up to Rs 10,000 under section 80CCC of the Income tax Act 1961. On retirement one can withdraw upto one-third of the Accumulated Account, which is also tax-free while the balance amount can be used to buy an annuity.

 

What is Vesting Age & Vesting Date?

Vesting age implies the age at which the receipt of pension payment starts when one opts for insurance cum pension plan. Vesting age is also referred as an age when an individual investor becomes eligible to buy an immediate pension plan. Vesting date in insurance cum pension plans is the date from which the policyholder starts receiving pension.

 

What is deferred pension plan?

Deferred pension plan is when the annuity payout is made at a future date.

 

What are the options available at vesting age?

In pension plan when the policyholder attains the vesting age he has the following options

  • Buy an immediate annuity plan from any Company approved by the insurer, with full 100% accumulation OR
  • Withdraw unto 33% of cash accumulation and the rest amount can be utilised to buy an annuity plan from any Company approved by the insurer.

 

What is the maximum age one can invest in Pension schemes?

The sole motive of the pension scheme is to create a corpus of savings over a period of time to ensure ones financial security post retirement. Though most life insurance companies offer Pension plans with the maximum entry age of 55 or 60 it is advisable to start saving for retirement as early in life as possible, as the amount builds into a significant corpus by the time the individual is 60 years old which is usually regarded as the retirement age.

 

Can I surrender my policy?

After you pay premiums for at least three consecutive years, your policy acquires a surrender value and you can surrender the policy. The surrender value of the policy will be equal to fund value less surrender charge. The minimum number of years for surrender of the policy differs for companies.

 Pension Plan Comparison Chart

Company HDFC Life insurance ICICI Prudential Kotak Life Insurance LIC
SBI Life Insurance

 

Plans HDFC Personal Pension Plan LifeLink Pension SP   Retirement Income Plan Pension Plan Lifelong Pension Plus
Overview The HDFC Personal Pension Plan is a ‘With Profits’ insurance policy that is planned to provide a post-retirement income for life with the freedom to choose your retirement date. ICICI Pru LifeLink Pension SP is a single premium plan that provides you the opportunity to enjoy regular income post retirement by just paying a single premium. This product comes with the Pension Return Guarantee Fund (PRGF) which provides you a minimum guaranteed NAV of

Rs. 19.10 (conditions apply) at the time of vesting.The Kotak Retirement Income Plan is a savings plan planned to meet your post-retirement needs. It is a plan that gives you “Jeene ki azaadi”. It gives you the choice to continue independent even after retirement.LIC’s Pension Plus is a unit linked deferred pension plan, which provides you a minimum guarantee on the gross premiums paid. The plan is without any life cover. It is a unique individual non participating traditional pension plan, which gives you total protection and security while offering you whole transparency and flexibility. This Plan is a perfect way for you to accumulate your savings and purchase an annuity with it, a time of your choice, to give you regular income. You would agree that all this will surely give you a secure future, and a cheerful retirement. 

 

Features1). A post Retirement Income.

2). Flexibility to plan your retirement age.

3) Choice of Single premium and Regular premium.

4) Flexible premium payment option

5) Benefit to nominee in case of unfortunate death

6) On your chosen retirement (vesting) date you will get the Sum assured + bonus which You can take up to 1/3 rd as tax free lump sum cash**

7). Premium payment can be done monthly, half-yearly or yearly.

** As per the prevailing Government regulations

 

Tax Benefits Tax benefit available under section 80CCC of the Income tax act, 1961.TaxBenefit Under section 80CCC and 10(10A) of the Income Tax Act, 1961Tax benefit under Section 80C, 10(10D) of Income Tax Act, 1961You can also avail the tax benefits U/S 80CCC of Income Tax act.You can also avail the tax benefits U/S 80C of Income Tax act.

 

Disclaimer: Please note that the information provided is collected from sources publicly available & we believe to 

be reliable. The website doesn’t warrant the accuracy, reliability & absolute information available on the website. Participation by site visitors or registered customers is on a voluntary basis. The policies are offered by various life Insurance & non-life insurance offering companies and Bimadeals does not seek to, either directly or indirectly, advise, offer, solicit or recommend that any person who is or proposes to become its member should purchase the Policy.

 

A Million Dollar Question:

 

Should I Buy Pension Plans?

Well, the Answer to this Question is again very Straight Forward & That is Plain No.

Here are the Reason we think so:

You final pension corpus will depend on a lot of factors such as administration charges, fund management, market performance and such like. The idea is to choose an insurer and product where you maximize your corpus while paying out minimum in the extraneous charges

 

Refer this link to check: Why Stocks?

So, if not Pension Plans then what? How About my Life after Retirement?

 

We Like Mutual Funds because they are free from all the above Mentioned Charges which means you’ll be getting more Units allotted for your Money & no charges will be deducted so forth. Today we’ll introduce you a SWP – Systematic Withdrawal Plan of Mutual Fund Industry which most of the People are just not aware of.

As we discussed earlier about SIP – Systematic Investment Plan where one do the savings Every Month in Regular Intervals of Time. We shared a Return Chart with Readers in Mutual Fund Section in Lesson No. 3. On the Similar bourses we can have Systematic Withdrawal Plan where you will take out Fixed Sum as your Retirement Income from Your Mutual Fund.

 

For 1 Crore Corpus, Systematic Withdrawal of 50,000 Rs. Every Month 

Return %age/Years 5 Years 10 Years 20 Years
10 % 5,49,798 0* 0*
15 % 48,72,250 57,82,629 1,17,43,246
20 % 1,44,22,297 3,37,09,373 22,58,90,145

 * After 71 Months, Amount will be zero.

That Means Even if you are withdrawing  50,000 Rs every Month & if you are able to get 20 % on your Corpus. The Money will never End. In fact in Another 20 Years time Frame, it will Become 22.58 Crore. Rs.

 

The First Point we want to Clarify here is 50,000 Rs after say 30-40 Years from Now will not be enough for you to meet your Expenses of a Month. If your Expense is 25,000 Rs today. After 25 Years, Considering 6% Inflation on Average, the Expense will come to 1.5 Lac Rs.

But Remember, we did this 1 Crore Rs Corpus with 1000 Rs. Saving Every Month. Obviously, You need to save more than that for your Better Retirement Planning.

 

Refer this link to know more about Systematic Investment Plans and to check out the Performance of different SIP of best performing mutual funds:

Multiply, the Invesment Amount with the No. you are comfortable with & Hence, just Make out how much you will have in the End for the Retirement.

I appreciate Comments be it Favour or Criticism. Post your Comments to let me know what you have in your Mind?

 

Refer this link to know how to invest in Gold and the returns offered by Gold:

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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