How Retirement Plans in India Work

by Vinaya HS on September 8, 2017

in Finance

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Retirement is supposed to be the best time of your life, where you reap the benefits of years of hard work. In order to achieve a worry-free retired life, it is important to plan for the years ahead.

You may invest in a retirement scheme, and avail of the benefit of regular income. The amount, known as retirement annuity, may then be used to fulfill your financial obligations, cover expenses towards medical bills, finance your children’s education, and support your family. Most retirement schemes offer tax deduction under the Income Tax Act, and hence you may make investments to avail of such benefits.

Compulsory features of pension plans in India

There are numerous pension plans in India, offered by private institutions and by the government. Every plan comes with its own set of features and benefits. Some of the basic features of retirement schemes in India are mentioned below.

1. Guaranteed maturity benefit

Maturity refers to the accumulated corpus over a period of time. In order to provide safety of the invested money, it is mandatory that retirement plans with a guaranteed maturity benefit offer 101% of the premiums paid or the Fund Value, whichever is greater.

2. Guaranteed death benefit

In the case of active policies, your nominee is entitled to receive a guaranteed death benefit in an unfortunate event of death. This amount should be 105% of the total premiums along with additional top-ups if any. Guaranteed death benefit ensures financial protection for your family, even in your absence.

3. Surrender or discontinuation

Earlier policy companies were allowed to forfeit paid premiums if you did not make further premium payment. Retirement schemes now come with the option of discontinuation or surrender of the policy as per the wish of the policyholder, subject to certain charges. However, according to the latest features of retirement schemes, the amount has to be invested in single premium deferred pension plans or immediate annuity policies.

Besides the aforementioned aspects, features of retirement schemes may vary from provider to provider. You should conduct extensive research and make a choice based on your needs.

Retirement plans – Should you invest?

The young generation may not place emphasis on retirement planning as they may believe it is a long way off. However, it is important to understand that the earlier you begin to plan for your golden years, higher will be the returns. Such plans work on the power of compounding, and hence you may enjoy greater benefits in the future.

Retirement planning helps you live the lifestyle you have always envisioned. Besides, you may obtain the necessary amount to meet contingencies. You may choose from a wide range of options, such as immediate annuity plans, plans with or without life cover, annuity certain plans, and immediate annuity, besides others.

It is important to be prepared for what the future may bring. Pension schemes ensure that you live a better life ahead. With regular payouts and high yields, you may live your retirement years on your own terms.




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