Understand the Different Types of Retirement Plans

Updated On Jul 03, 2021

Understand the Different Types of Retirement Plans

The retirement plans are also commonly referred to as the pension plans, which are significant tools to get monthly income on a regular basis post your retirement. There are systematic and well-designed retirement plans for government employees in order to offer them post-retirement pension income. The employees working in organized sectors or the private sectors can avail their pension after completion of a specific tenure in jobs through the Employee Pension Scheme (EPS). Moreover, in order to make your life after retirement more peaceful, you can choose to get your retirement plans clubbed along with an insurance policy. The article gives information regarding different types of retirement plans.

Understand the Different Types of Retirement Plans

Following are some of the most popular types of investment solutions for retirement planning -

ULIP or Unit Linked Pension Plans

Traditional pension plans invest the amount of premiums received from the policyholder in an investment option that is safe such as government securities and debt. However, individuals having a higher risk appetite and one’s who are aggressive investors can invest in pension plans that put a significant part of their money(premiums paid) in high risk options like stocks, bonds, money market and non-government securities. These plans are referred to as ULIPs or Unit Linked Pension Plans.

National Pension Schemes (NPS)

National pension schemes or NPS is a pension plan that was enforced by the Government of India (GOI). It’s a social security scheme, wherein employees of different sectors till they get 60 years or above in age are provided with the necessary help. Within this duration, individuals can invest in NPS and can withdraw a maximum 60% from the total accumulated amount when they turn 60 years old. The remaining amount is given in the form of annuity pay-outs as pension for life.

Traditional Pension Plans

Under this category, there are 4 plan options - a regular pension plan, a pension plan with immediate annuity payments, a pension plan with life cover and a pension plan with deferred annuity payments. Let us take an in-depth look at each of the options:

1. Regular Pension Plan: Under this pension plan, the entire sum set aside by you gets invested and at the end of the term you receive the corpus alongside the interest earned. In case you do not survive the whole plan tenure, the nominee would get the corpus alongside the interest earned till the time of your death.

2. Pension Plan with Immediate Annuity Payments: This plan permits the policyholder to begin earning an income from the following month from which you have made an investment. It is similar to earning monthly interest income from the fixed deposit in a financial institution like a bank.

3. Pension Plan with Life Cover: Under this plan, a certain part of money set aside by you for paying a premium in order to cover your life via a term plan for a sum assured, is taken out. Generally, the premium for term insurance is low. Therefore, under this plan, the nominee assigned would get the sum assured in the event of your demise prior to the end of the plan duration. Also, the nominee would be entitled to the accumulated amount from the beginning of the plan till the time of death.

4. Pension Plan with Deferred Annuity Payments: Under this plan, the policyholder is allowed to accumulate the corpus by premiums paid during the plan duration. Towards the end of the plan duration, the premium paid and accumulated interest, combined, becomes a significant amount of corpus. Generally, a pension plan with deferred annuity payments comes along with a life insurance plan.