Retirement – Pension Plans
A retirement plan helps you build financial security and long-term stability to ensure a comfortable future. An annuity plan and a pension policy act as vehicles to accumulate a substantial corpus for retirement. By opting for a pension plan, you can safely invest your savings and watch them grow over time, providing a secure foundation for your retirement years. Investing in the best retirement plans offers regular monthly payouts, allowing you to maintain your lifestyle post-retirement. With retirement plan, you have the flexibility to choose between monthly or annual payouts, customized to meet your specific financial needs. Moreover, these retirement plans typically cover life insurance, enhancing your overall financial security and providing peace of mind.
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What are Retirement/Pension Plans?
Retirement plans are financial policies that enable you to plan for the future, even when you no longer have a steady income. There are two types of plans:
Pension Plans: These investment plans allow you to systematically save money over the years so that you can enjoy a steady income once you retire. With a pension plan, you can maintain your financial independence, even when your income stops post retirement. Most importantly, a pension plan in India allows you to deal with inflation without compromising on your standard of living.
Annuity Plans: An annuity plan helps you secure your financial future with regular income payments for the rest of your life. With a pension policy, you have something called an accumulation phase. During this time, you put money into the policy periodically. When you choose to retire, you can purchase an annuity with these accumulated funds. The annuity then provides you with regular payments as per the terms and conditions of the plan you purchased.
Depending on when you’d like to start receiving the annuity benefits, you can select between two types of annuity plans:
Have you saved enough to meet your expenses post-retirement?
- Inflation can eat away your dwindling retirement income easily.
- With increasing life expectancy, the longer you live, the more you spend.
- Start preparing early to save enough to support your needs and wants.
Why Do You Need Retirement Plans?
Retirement plans are designed to help you secure a steady source of income throughout your retirement. These plans enable your savings to grow over time, allowing you to maintain your standard of living despite inflation.
One of the key benefits of retirement plans is the joint life option, which ensures that if anything happens to you, your spouse will continue to receive regular payments for life. This feature provides peace of mind, knowing you can enjoy your golden years without financial worries.
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Our top recommended solutions depending on age and goal
Guarantee yourself a steady source of income for life by investing lumpsum in annuity plans.
You should go for these, if you:
- Have a substantial lumpsum amount / corpus to invest
- Looking to create alternate source of regular income post retirement
- Are retired or are few years away from your retirement (eg: 1 – 15 years)
Note: These are generic features and they may vary depending on the product selected. Please read the product brochure carefully of the selected product
Concerned about your post retirement life? Start now with pension plans and build your retirement corpus to enjoy a worry-free retirement
You should go for these, if you:
- Are Looking to accumulate and create a lumpsum retirement corpus
- Want to start planning for your retirement from an early age (Plans available from age 18 years onwards)
- Know the amount you want to invest every year
- Can start with investment as low as ₹ 2000 per month
Note: These are generic features and they may vary depending on the product selected. Please read the product brochure carefully of the selected product
Features of Pension Plans
Stable Post-Retirement Income
Pension plans offers guaranteed, stable payouts once you retire.
Tax Efficiency
Pension plans like the NPS and Atal Pension Yojana enjoy tax benefits under Section 80C of the Income Tax Act of 19615.
Emergency Liquidity
Some types of pension plans allow partial withdrawals during the accumulation phase in emergencies.
Life Coverage
Pension plans offer life coverage and provide the beneficiary with a payout if something happens to the policyholder.
Features of Annuity Plans
Regular Payments
Annuity plans provide a regular income stream in the form of periodic payments, usually monthly, to the annuitant. The payments can be fixed or variable, depending on the terms of the annuity plan.
Investment Options
Annuity plans offer various investment options, such as stocks, bonds, and mutual funds, which can help you diversify your portfolio and potentially earn higher returns. For calculating your retirement corpus you can use the retirement calculator and if you want to find out your pension requirement then you can use the pension calculator.
Life Coverage
Annuity plans may offer life coverage, which means that if the annuitant passes away before receiving all the payments, the balance will be paid to a designated beneficiary.
Tax-deferred Growth
Annuity plans offer the advantage of tax-deferred growth, which means that the money you contribute to the plan grows tax-free until you start receiving payments. It helps your money grow faster over time.
Flexibility
Annuity plans offer some degree of flexibility in terms of payment options and timing. For example, some plans allow you to choose between fixed or variable payments, and some plans allow you to choose when you want to start receiving payments.
How Do Pension Plans Work?
A pension plan is a financial tool that gives you regular income during retirement. In India, pension plans have two main phases:
Accumulation Phase: During this time, you pay premiums, which are invested in a fund or asset of your choice for a set period.
Distribution Phase: When the plan matures, you can either withdraw the money to buy an immediate annuity or receive monthly pension payments.
Why Opt for Pension Plans?
When you opt for a pension plan, you enjoy:
Guaranteed Maturity Benefits
Every pension plan must offer a guaranteed maturity benefit. The maturity benefit usually amounts to the accumulated fund value or 101% of all premiums paid, whichever is higher.
Guaranteed Death Benefit
Individuals who pay all their pension plan premiums without breaks are entitled to a guaranteed death benefit. Should anything happen to the policyholder, their beneficiary will receive a payout equal to 105% of the total premiums paid, including top-ups.
How Do Annuity Plans Work?
Individuals can make a single lump-sum payment or a series of payments to an insurance company to purchase an annuity plan. Once you complete the payment, the company invests the amount to help you build a corpus. The company then offers monthly payouts from the accumulated corpus once you retire.
Why Opt for Annuity Plans?
When you opt for an annuity plan, you enjoy:
Financial Stability
Annuity plans provide monthly payouts, offering financial support and stability once you retire.
Investment Diversity
Annuity plans help you diversify your investment portfolio to earn high returns in the long run.
Coverage for Loved Ones
Most annuity plans offer a life insurance component. If something happens to you before you receive all the payments, your beneficiary receives the amount on your behalf. You can select your spouse as your beneficiary to provide financial support when they need it most.
Retirement Plans is incomplete without these riders.
They help you deal with those additional risks life brings.
Why Should You Invest in Retirement Plans Now?
The earlier you start planning for retirement, the better. Nowadays, people aim to achieve financial independence quickly so they can retire early. Many follow the FIRE (Financial Independence, Retire Early) approach, which involves saving and investing heavily in their 20s and 30s. This method encourages setting aside a large portion of income and investing in growth-oriented plans to build a future fund. Starting to save and invest at 30 gives you more time to accumulate a good amount, while starting in your 40s or later means having less time, often resulting in a smaller savings fund.
How Much Do I Need to Retire?
When you start planning for retirement, you must first understand how much you would need once you retire. Let’s see how to calculate the amount:
1 Check Your Monthly Outgoings
Review your current monthly expenses. While some costs like daily travel, home loan EMIs, and school fees may stop after you retire, you’ll still need to cover groceries, utility bills, and property taxes. Knowing your expenses now will help you estimate what you’ll need in the future.
2 Consider Your Retirement Goals
After you retire, do you plan to start a consulting business or travel with your loved ones? Consider the extra costs you might need to cover to achieve your retirement goals.
3 Calculate Expected Income After Retirement
Your investments will give you returns when you retire. Learn how much each investment will give you based on when you retire.
4 Think About Inflation
Lastly, think about how inflation will affect today’s costs in the next 20 or 30 years. Always plan for a higher inflation rate to make sure you have enough.
Who Should Buy Retirement Plans?
Let’s look at the different types of people who should purchase retirement plans:
Young Professionals
Young people who have just started working benefit the most from buying a retirement plan. The retirement plan allows them to invest in their future. Because they start early, they have more time to invest and grow a large savings fund for later.
Independent Women
Many young women today focus on their careers and looking after their parents and loved ones. Buying a retirement plan allows them to also invest in their future. It provides them with financial independence once they retire.
Parents
Parents want to stay financially independent after they retire and not rely on their children during money emergencies. Buying a retirement plan early helps them maintain that independence.
Newlyweds
When you get married, you have more financial responsibilities. You also have to look after your spouse. Buying a retirement plan once you get married enables you and your spouse to plan for a time when you no longer have to work and want to see the world together or pursue your hobbies together.
Why Choose Smart Pension Plan?
Plan your retirement with Smart Pension Plan and get:
- Life insurance cover to the extent of 105% of all premiums paid including top-up premium
- To build a retirement corpus
- Flexibility to alter vesting date and premium payment term
Why Choose Smart Pension Plus Plan?
When you plan your retirement with Smart Pension Plus, you get:
- Guaranteed Annuity Income for whole of life by paying premiums for a Single or Limited payment term
- Flexible payout options to receive your Annuity amount.
- Single plan offering both Immediate Annuity and Deferred Annuity
Features of Retirement Plans in India
Steady Flow of Income
Retirement plans offer you a guaranteed1 income on retirement, so you don’t have to worry about not having a steady income once you retire. Additionally, depending on the policy you opt for, you can secure your spouse’s financial future even if something happens to you.
Surrender Value
If you opt to surrender your pension plan before it matures, you will forfeit any additional benefits it offers. Your pension plan will be considered a limited value plan, and you can commute a portion of the fund value and purchase an annuity with the remaining amount.
Payment Period
Once the accumulation period gets over, you start receiving your pension payments. This phase is called the payment period. With annuity plans, the payments continue for as long as you are alive. So, you choose when you’d like to start the payment period.
Vesting Age
The vesting age is the time from when you become eligible to start receiving your pension payments. In India, most plans offer a minimum vesting age of 40 or 50 years since people retire and start receiving their pension when they are 60. You can find a plan that offers you what you need based on your retirement plans and goals
Accumulation Period
You can opt to make a lump sum investment into your pension plan or make regular monthly or annual payments. Over time, your wealth grows since the money gets invested for you. The longer your accumulation period, the more money you will likely enjoy at maturity. If you start the accumulation period at the age of 40 and want to start your pension payments at 65, you invest for 25 years. The corpus you build up over that time will provide you with the bulk of your pension payments.
What are the Steps to Buy Retirement Plan?
A retirement plan is a multi step process that evolves with time. The following steps will help you map out a retirement plan:
Step 1
Set a budget - list out 30 things in order of priority breaking them into short, medium and long term goals. Allocate your current income to get an estimate.
Step 2
Evaluate your current financial position - examine your current financial position versus your financial goals, be more proactive about savings, investments and income.
Step 3
Identify your income sources - consider all your income sources including insurance, investment portfolios, assets, and an option to do a part-time job to take charge of your retirement funds.
Step 4
Are you running short? Re-evaluate your investment, make catch-up and bite-sized contributions to fill the gap.
Retirement Plan Buying Guide
1- 3 Reasons You Need To Start Your Retirement Planning Today
By your mid-thirties, chances are that your standard of living has improved significantly since your twenties, when you first joined the workforce. But have you considered what will happen when you are no longer able to work for a living? Retirement planning is not something to worry about later; it’s something you need to act on today. Starting early on building your retirement nest egg can make a world of difference to the security of your financial future.
Conducting a pension plan comparison at this stage is also crucial, as it helps you evaluate different options and choose the best plan for long-term financial security. Here’s why you should start planning for your retirement today.
More Savings, More Earnings
We all know the burden of taxes can be a hard one to bear, especially when you have a family to provide for. With the weight of these financial burdens, it can be easy to neglect yourself and your future financial security. You tell yourself that you’ll start saving for retirement once you get that promotion, once you turn 40 or once your kids go off to college.
However, the sooner you begin the better. In fact, investing money in your retirement plan can even help you save on taxes. By investing in retirement schemes such as the Public Provident Fund (PPF) and New Pension Scheme (NPS), you can avail up to Rs.1.5 lakhs in tax deductions under Section 80C.
What’s more, the power of compounding has a lot to offer you. Say you begin investing Rs.300 per month at the age of 25. Assuming an interest rate of 8%, you’d have over Rs.1 million by the time you are 65. Now if you invested the same amount starting at the age of 35, you’d have only Rs.440,000 at 65. In this case, starting a decade earlier would more than double your final amount.
Maintaining Your Independence
When you’ve spent your life supporting and providing for your children, it’s likely that they will want to help you out financially in your old age. However, being too dependent on them could mean them delaying their own financial goals as young adults. Wouldn’t it be better instead for you to have your own source of income? The earlier you start on your retirement savings, the bigger corpus you’ll have to fall back on. Perhaps you will even be able to help your children as they get settled!
And should something happen to you, a retirement plan or a pension plan will help ensure that your spouse and children are looked after in your absence.
Reaping Rewards
Sometimes it seems that the harder you work, the more inflation gets ahead of you. But what do you do about it? You save – not only for short-term goals and emergencies, but for your retirement as well. Even if it is only a small sum that you can manage to stash away at the end of the month, it’s better than nothing, and the small sum will grow eventually.
So don’t hesitate to start investing. Start small and let compounding do its job, so you don’t have to live small later in life. It’s possible to maintain your current standard of living after you retire or even go on that dream vacation. All it takes is the right approach.
Now that you’ve seen how early retirement planning can help you continue to live life on your own terms even after you’ve stopped earning, your next step is to start investing in a retirement plan. With the abundance of options available in the market, it can be difficult to zero in on the retirement plan for you. We provide retirement plans to help you meet the high cost of living and rising inflation. Choose from our range of pension schemes to find the one that best suits your needs.
2- Factors to Consider While Buying Pension Plan in India
You are convinced that you need to buy a pension plan for a financially secure retirement. However, you are not sure how to get started and the various steps to take. Here are some major aspects about pension plans that you need to keep in mind before buying them.
- Determine retirement savings target
When you are saving for your retirement through regular in retirement plans, or in a pension plan or a pension scheme, you need to figure out the savings you require at retirement. This will help you figure out the regular investment you need to make in pension plans. Remember to take into account your retirement savings from other sources like provident fund. In this stage, also take into account the retirement income needs of your spouse and family members, such as a financial dependent member with special needs. If this sounds a little complex for you, take the help of online calculators or the help of a financial advisor with proven expertise.
- Start early
To have ample retirement savings, you need to buy the pension plan early in your work life. This will make sure you have ample time to make small investments so that you can save a large amount.
- Premium payment period
When buying a pension plan in India from a life insurance company, get a sense of the time till which you will need to make the premium payment. This will keep you informed about your financial commitments to the pension plan.
- Determine the kind of retirement income needed
The amount of regular investments you need to make in pension plans also depends on the retirement income arrangements you expect to have in place. For instance, if you have company pensions or superannuation funds, these, along with provident fund and gratuity, will mean that you will need to reinvest these retirement savings at retirement, or create regular income through, among other things, annuities. Since two thirds of retirement savings in pension plans or retirement plans have to be converted into regular retirement income, you need to have a sense of your retirement income needs.
- Look beyond tax savings
Sure, pension plans in India provide annual tax deduction from total income under Section 80CCC of the Income-tax Act, 1961, for amounts upto Rs 1.5 lakh but that should not the main reason for buying a pension plan. Pension plans help you address the risk of outliving your money in retirement. You need to manage the risk in any case. Therefore, ensure that you eyes are firmly on your retirement income needs when buying a pension plan. In India, retired life is no longer a small period. The right decisions taken while buying a pension plan may well make a difference between you digging deeper in your pockets in retirement and leading a carefree retired life.
3- Best Time to Invest in a Pension Scheme
The best time to start investing in a pension scheme is right now. When it comes to saving up for your retirement, the earlier you start, the better. The longer you stay invested, the more time you have to build up a significant corpus for your golden years.
Eligibility Criteria for Retirement Plans
Individuals who want to purchase a retirement plan must be at least 18. Many companies will not allow individuals over 65 or 75 to buy retirement plans.
Documents to Be Kept Handy
1- Acceptable KYC proofs
List of valid KYC documents for individuals
Sr. No | Documents | Identity Proofs | Address Proofs |
1 | Passport | Y | Y |
2 | Voter’s Identity Card issued by Election Commission of India | Y | Y |
3 | Permanent Driving License | Y | Y |
4 | Aadhaar Card | Y | Y |
5 | Central KYC Identifier (can be accepted, if the downloaded documents are from the list of Officially Valid Documents (OVD) reflecting across Sr. No. 1 to 4 and there is no change in the address basis the document downloaded from Centralized KYC Registry (CKYCR) database as mentioned on the proposal form) | Y | Y |
Features | Documents |
Insurance Contracts with companies |
|
Insurance Contracts with partnership firms |
|
Insurance Contracts with trusts & foundations |
|
Insurance Contracts with Hindu Undivided Family (HUF) |
|
Any other ‘Officially valid document’ that shall be notified by the Central Government, in consultation with the Regulator from time to time.
2- Acceptable Income Proof
Sr. No | Source of Fund / Proof of Income Document | Resident Indian | NRI | |||||
Salaried | Self Employed / Business | Agriculturist | HRI / PEP | Special Jurisdictions | Salaried | Self Employed / Business | ||
1 | Salary slip / certificate – issued in last 3 months | Y | N | N | Y | Y | Y | N |
2 | ITR / Form 16 / assessment orders / Computation of Income issued in last 3 years | Y | Y | Y | Y | Y | Y | Y |
3 | Bank statement which establishes the Source of Fund / Bank statement (preceding 6 months) – addition of non-cash credits | Y | Y | Y | Y | Y | Y (Indian Bank Statement) | Y (Indian Bank Statement) |
4 | Audited Company accounts issued in last 3 years | N | Y | N | Y | Y | N | Y |
5 | Audited firm accounts issued in last 3 years and Partnership Deed | N | Y | N | Y | Y | N | Y |
6 | Chartered Accountant’s Certificate issued in last 3 years | N | Y | N | Y | Y | N | Y |
7 | Fixed deposits liquidation entries in bank statement/ mutual fund redemption entries in bank statement (to the tune of total premium paid by customer in a Financial Year) | Y | Y | Y | Y | Y | Y | Y |
8 | Rent receipt (issued in last 3 months) with valid agreement | Y | Y | Y | Y | Y | Y | Y |
9 | Mandi receipt / Form J issued in last 1 year / agriculture records | N | N | Y | N | N | N | N |
10 | Indian / Foreign Bank statement having non cash credits (preceding 6 months) Also the translation of the Bank statement is required, if not in English | N | N | N | N | N | Y | Y |
3- Acceptable documents for change in Date of Birth
The allowable document list is as below:
- Birth certificate
- PAN card
- Aadhar card
- Driving licence
- Passport
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Retirement Plans – FAQ’s
We’ll tell you everything you need to know about Retirement Plans.
1- When should I start planning for retirement?
Retirement planning really depends on what stage of life you are. When you want to start really depends on you, your needs at 30 versus at 50 will be very different, so plan wisely.
If you are 20-30 years away from retirement then you need to be focused on accumulating retirement assets. At this stage try to get through the crunch years in decent overall financial shape (without credit, debts, etc.).
If you are 10-15 years away from retirement then it’s crunch time, and fine-tuning your retirement plan. Look at your income options, your retirement assets and align your retirement goals to them.
If you are just about to retire then it’s all about adjustments to minimize tax, maximize your income, and manage your assets. It’s about making your assets last as long as you can.
The earlier the retirement planning the better but the closer you get to your retirement, you will have to pay close attention to details.
2- What is the importance of insurance in retirement planning?
Many of us view life insurance as a way to protect families with death benefits. It is not just a savings or investment vehicle, but if needed, it can provide flexibility and access to a policy’s cash value, making it a valuable addition if properly utilized in a comprehensive retirement income plan.
Having an appropriate type with the correct amount of life insurance in your retirement will accomplish multiple things. It can help protect your income, provide tax-free cash flow, manage taxes, help your loved ones recover from any financial risks, and also improve the total returns in your portfolio.
In short, life insurance can provide more than just protection as it has the potential to provide protection and benefits throughout your retirement years.
3- Can I change the nominee of the policy?
Yes, you can change the nominee on your policy. You can complete the process online by signing into your account and managing your policy online. Click the My Policy Tab and then select the Change in Nominee/Beneficiary Name option. Fill in the requisite details and submit your application to change the policy nominee.
4- What is the vesting date?
When talking about pension plans, the vesting date is the maturity date. So, it is the date when the policyholder starts receiving the benefits or the pension or when the pension corpus is invested into an annuity.
5- How can I Pay the Pension Plan Premiums?
You can pay your retirement plan premiums online via:
- Netbanking
- Credit card/ Debit card
- Debit Card with PIN
- SI on card
6- How do I calculate the retirement corpus?
You can use a mathematical formula to calculate your retirement corpus. This formula, known as the present value formula, is:
Present Value = Future Value · (1+r)n
Here, r is the rate of returns and n is the number of years.
7- What are the tax benefits on pension plans in India?
You can claim tax deductions on contributions you make to your pension plan up to INR 1, 50,000 per year. The deduction terms are outlined under Section 80CCC of the Income Tax Act, 19615. Certain pension plans in India also offer additional tax benefits under Section 80CCD.
8- What are participating and non-participating pension plans?
Participating pension plans, also known as par policies, allow the policyholder to share the insurance company’s profits. So, whenever the company earns profits, the policyholder will earn a portion of these profits in addition to the pension plan’s guaranteed benefits. The benefits are known as bonuses, incentives or dividends.
In non-participating pension schemes, individuals do not earn additional incentives. They only get the guaranteed pension on the plan’s maturity.
9- What is annuity?
An annuity is a type of financial plan that allows individuals to receive regular payments for the rest of their lives after making a lump sum contribution. When you opt for an annuity plan, your insurance provider invests the money on your behalf and pays out regular sums at given intervals.
10- I already have a provident fund account. Do I need a pension plan?
When it comes to planning for the future, you can never be too careful. While a provident fund account also allows you to save for the future, the kind of withdrawals you can make are limited. On the maturity of a provident fund, you can only withdraw a small portion of the funds. You must use the rest to purchase annuity.
With a pension plan, you can build up a corpus for the future and use it any way you wish since there is no cap on the amount you can withdraw on maturity.
11- Can I have multiple pension plans?
Yes, you can choose to invest in multiple pension plans. However, there is a limit on the maximum amount you can contribute across all policies, especially if you’d like to enjoy tax benefits5.
12- Does the pension plan in India end after the policyholder’s death?
No, most annuity plans come with a life insurance component. So if the policyholder passes away, the nominee will receive the benefits of the policy. They can choose to withdraw the entire amount or use a part of the amount to purchase an immediate annuity.
Retirement Plans offer:
- Financial independence once you retire.
- Means to fulfil your retirement goals.
- Life coverage, offering financial stability to your loved ones.
- Tax savings.
- Guaranteed returns in your golden years.
- Low entry age of 18.
- Limited premium-paying term.
- Options to choose payment frequency.
Disclaimers
1. The word “Guaranteed” and “Guarantee” mean that annuity payout is fixed once the policy has been purchased.
2. Only for policies that are in-force. (3% of sum assured on vesting) that will get accrued for each completed policy year. Subject to policy being in force and all due premiums being paid. Conditions Apply.
3. Loyalty addition would be added to the fund starting from 10 Policy Anniversary for the other than ‘Single Premium’ policies paying Annualized Premium of ₹ 1,00,000 at least and for all the Single Premium paying policies.
5. Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax lsiabilities under the Income-tax law.