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10 Things To Know About Pension Plans in India

Published On Aug 07, 2021

In today’s time, the cost of living is increasing with every passing day. It has become significant for young individuals to start their retirement planning as early as possible to prevent discomfort at a later stage. While pension plans may come across as the ultimate savior, it is vital to know a few things about pension plans beforehand to make a worthwhile decision. 

10 Things to Know About Pension Plans in India 

If you were planning to buy a pension plan, go through the below mentioned points: 

1. Presence of Accumulation Phase

Accumulation phase is the period between the time of purchase of a pension plan and the retirement plan. During this accumulation phase or period, the premiums paid are invested in specific avenues. You can get the benefit of tax deductions on the premiums paid in adherence to Sections 80C and 80CCC of the Income Tax Act.

2. Importance of Annuity Plan

At the time of your retirement, you will be able to withdraw only 1/3rd of the money accumulated as a part of the pension plan. It will be significant for you to invest the balance amount in an annuity plan. Learn that you will be provided a monthly pension from the plan on the basis of interest rates of the chosen plan. 

3. Lack of Flexibility

Choosing a specific plan will require you to stick with it for many years. Changing the investment plan halfway through or liquidating assets in case of an emergency won’t be possible for you. 

4. Insurance Companies Provide Pension Plans

Many insurance companies offer Unit Linked Pension Plans or ULPPs. Under these plans, you may get a chance to gain more returns on your savings. One of the key reasons is because you will be free to choose where your money is invested. Under these pension plans, you will get more flexibility as compared to the traditional pension plans. 

5. No Tax Exemption on Actual Pension

The pension paid towards your pension policy may feature the tax deduction benefit, however, the actual pension that you receive on the maturity of the policy will not be exempted from tax. 

6. You Can Choose Investment

If you want your returns to be exempted from tax, investing in equities, PPF or mutual funds is advisable. 

7. Pension Schemes Lack Diversification

Most pension plans come with only a few limited investment avenues. You may get the pension you need, but you may not be able to gain higher returns due to lack of diversification of your investment portfolio. 

8. Mutual Funds Is An Option

There are some mutual fund companies that provide government-approved retirement schemes, thereby helping customers diversify their pension portfolio. These plans also feature the tax benefit advantage, which may otherwise not be possible. 

9. National Pension Schemes Offer Less Flexibility

NPS may be the preference of many due to flat charges and low fund management fee. However, the schemes come with a little flexibility as the retirement age is fixed at 60 and only 10% of the accumulated amount can be withdrawn every year. 

10. Developed Discipline

Pension plans promote savings and help people develop financial discipline in their life.

Must Read: How Many Years Does a Pension Last?

Is A Pension Considered A Retirement Plan
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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