Different Types of Pension Plans

If you work in the private sector, own a business, or are self-employed in India, there is no question that you need and should invest in a pension plan. Workers in the public sector are lucky to have a pension plan paid for by the government. This is not the case for a large portion of the private sector workforce.

India also doesn't have a single government pension system, so people have to rely on different types of pension plans to get benefits when they retire. Also, the rise of single-parent families, economic uncertainty, and rising costs of living and health care mean that people need to plan, save, and invest in pension and annuity plans in a smart way.

What Are Pension Plans?

People sometimes use the term "pension plan" to talk about retirement plans. With this approach, you can put a certain amount of your income into the plan. The main goal of a pension plan is to give you a steady income when you retire. Because inflation is getting worse all the time, it is important to put money into these projects. Even if you have a lot of money in your bank account to invest, you may still need one. This is because most investment funds are used to meet needs that come up out of the blue. Because of this, the best pension plan will give you financial security even if you lose all other streams of income.

Different Types of Pension Plans

The following are the different types of pension plans: 

• National Pension Scheme (NPS)

The Pension Fund Regulatory and Development Authority (PFRDA) is in charge of the National Pension Scheme (NPS), which is a popular way to get a steady pension after you retire. With NPS, you can put money into a retirement account as you work. Your money is put into a mix of debt and stock markets, based on what you want. Once you turn 60, you can take out a portion of your investment as a lump sum and use the rest to buy an annuity that will give you a steady stream of income.

• Pension Funds

Six companies have been given permission by PFRDA to offer pension funds in India. For a pension fund to work, you have to put away a set amount of money for a set amount of time in a fund of your preference. Most fund providers offer a wide range of funds to meet the needs of different investors. As the worth of the fund goes up, so does the money you put into it. After you retire, you can either take out the whole amount or leave it invested and get a steady income.

• Annuity Plans

There are two kinds of immediate and deferred annuity plans. In an immediate annuity plan, you pay a lump sum and start getting an annuity right away, either yearly or monthly. With a deferred plan, you can either invest a lump sum or make frequent payments for a certain amount of time. The annual or monthly annuity is paid out only after a certain amount of time has passed. In both plans, the annuity payment can be for a set amount of time or for life.

• Pension Plans With Life Coverage

These plans offer both life insurance and a way to save money. Your life insurance premium is set aside in a separate account, and the rest is put into a savings or retirement plan of your choosing. At the end of the term, you can take out the whole amount at once or get payments over time. The death benefit will be paid to your designated beneficiary if you pass away within the policy's term.

Conclusion

Make sure you've done your research and selected a pension that fits your needs before making a purchase. Make sure you have a clear idea of your future goals and how much money you will need in retirement, taking into account your current income, inflation, and risk profile.

Also read: The Best Available Pension Plans in India

PFs vs Pension plans