What are Retirement Plans?

Retirement Plans are a category of life insurance plans that are specially designed to meet your post-retirement needs such as medical and living expenses. To ensure that you can enjoy your golden years with financial independence, these policies help you plan for your expenses and secure your future.

Why do I need to plan for my retirement?

  • Increasing retirement years: With average life expectancy increasing in India, it has become increasingly important to plan for a longer retirement. The life expectancy figures indicate how long an average individual lives. In India, the average life expectancy of a person aged 60 is 17.5* years. This means that an average Indian lives up to the age of 77.5. Hence, you need to start planning in advance to maintain your lifestyle and take care of other expenses for such a long duration.
  • Medical expenses: A major worry with increasing age is unforeseen medical expenses. Rising at 15-17%^ every year, such medical costs can be difficult to manage unless you plan for them in advance.
  • Financial independence post retirement: You would like to live your life on your own terms after your retirement. However, more than 65%* individuals above the age of 60 depend on others for their daily expenses. This shows how important it is to plan for your retirement and ensure your financial independence.

*As per the 'Situation Analysis of The Elderly in India' report of Ministry of Statistics and Programme Implementation (MOSPI)
^
Source: Outlook Money February 20, 2013

 

Benefits of Retirement Plans:

  • Guaranteed regular income for life: With Retirement plans, you and your spouse can receive regular pension for life.
  • Security for your children in your absence: In some retirement plans, your children will receive a lump-sum amount in the absence of both you and your spouse. This helps you leave behind a legacy for your children.
  • Tax benefits: Apart from enjoying a comfortable retirement, you can also enjoy tax benefits** on the premium paid up to a limit of ₹ 1.5 lakh. In addition, at the time of maturity, the pay-outs you will receive are also completely tax-free.

**Tax benefits are subject to conditions under Section 80CCC and 10(10A) and other provisions of the Income Tax Act, 1961. Applicable taxes will be charged extra as per prevailing rates. Tax laws are subject to amendments from time to time.

How much do I need to save for retirement?

It is important to consider your financial requirements after retirement to calculate the retirement kitty that will suit your needs. You must decide the amount required to maintain your lifestyle as well as take care of your increased medical expenses. You can arrive at the exact amount required through our easy-to-use Retirement Calculator.

Why should I start planning for my retirement now?

  • Power of Compounding
    If you start saving early, your money will get more time to grow. For example, if you start investing ₹ 1.5 lakh p.a. at the age of 45, your retirement savings will be ₹ 44 lakh at a rate of 8% or ₹ 31 lakh at a rate of 4%, by the time you are 60 years. However, if you had started saving the same amount from the age of 40, your retirement savings at 60 would be ₹ 74 lakh at 8% interest rate and ₹ 46 lakh at 4% interest rate.
  • Increasing Inflation
    After retirement, you will need regular income to meet your expenses.The later you start saving for your retirement, the more you will need to save. For example, if your monthly expenses are ₹ 35,000 at the age of 30, then by the age of 60, they will be ₹ 2.66 lakh## due to inflation. To meet these expenses, your retirement savings will need a monthly contribution of ₹ 27,000. However, if you delay your savings by just five years, this amount will increase to ₹ 42,500 per month.

    ##Assuming inflation at 7%

How do pension plans work?

Upon retiring, your regular income flow dries up and meeting day to day expenses can become a problem. A pension plan ensures that your income flow continues well beyond your retirement. Pension plans let you accumulate a corpus of funds through a lump sum investment or premiums that you pay over a period of time. Upon retirement, you receive regular payments from your corpus to ensure that the expenses can be met and your future is secure.

Types of pension plans in India

  • Immediate Annuity: Your pension begins almost immediately after a policy is purchased and a lump sum amount has been deposited by you.
  • Deferred Annuity: A corpus can be accumulated over a policy term through regular premiums and your pension starts after the term is over.
  • Annuity Certain: Your pension is paid in a series of payments over a set period of time that can be chosen by you.
  • Life Annuity: Your pension is paid to you for your lifetime. In case of an unfortunate event, your spouse is entitled to the pension.
  • With Cover Pension: Your pension plan includes an insurance cover that entitles your dependents to a lump sum amount in case of an unfortunate event.
  • National Pension Scheme: Managed by the central government, you can withdraw 60% of the amount at retirement while 40% must be used to purchase an annuity.

Benefits of pension plans

  • Regular Income Post Retirement: You receive a guaranteed amount of money on a regular basis after you have retired from work.
  • Insurance Cover: Most pension plans have an included insurance cover that protects you and your family from any possible financial burdens.
  • Tax Benefits: Depending on the policy chosen by you, there are certain tax benefits and exemptions that you can avail of**.
  • No-Risk Investment: Pension plans provide you with unconditional protection from any and all investment risks.
  • Option to Add Riders: You can enhance your pension plan by adding certain riders like ‘disability due to accident’ or ‘critical illness’.

Features of Pension Plans

  • Annuity: The most important feature of a pension, it is the regular payment that you receive from your lump-sum investment.
  • Vesting Age: The vesting age is the particular age at which you start receiving your pension payments.
  • Accumulation Period: This refers to the entire period in which you pay premiums towards the accumulation of a corpus.
  • Payment Period: The payment period is the entire period during which you will receive the pension after your retirement.
  • Surrender Value: This is the amount you will receive if you choose to surrender the pension plan before its due date.

Factors to consider while buying Pension Plans

  • Monthly Expenses: Once you retire and a regular source of income is over, your pension needs to cover all monthly expenses.
  • Inflation: You need to consider inflation because the cost of various day to day things are bound to rise in the future.
  • Life Expectancy: Your pension should ensure that money won’t run out for the remainder of your retired life.
  • Medical Expenses: Money can be needed for health checkups and any unforeseen medical treatments.
  • Outstanding Loans: Any outstanding loans need to be considered as they can take a sizeable chunk out of your pension.

Eligibility criteria for Pension Plans

  • Minimum and Maximum Entry Age: For most pension plans, the minimum age of entry is generally 30 while the maximum entry age is 75.
  • Minimum and Maximum Vesting Age: In most cases, the minimum vesting age is 45 years while the maximum age is 80 years.
  • Policy Term: Depending on the chosen pension plans the policy term generally ranges from 10 years to 30 years.
  • Annual Premium Amount: There is no maximum limit, and the minimum annual premium amount is close to ₹ 50,000/- in most cases.
  • Premium Payment Term: Generally, the premium has to be paid for the same period as that of the chosen policy term

Documents required to buy a Pension Plan in India

  • Document for Age Proof: Birth Certificate/Passport/Driving License/Voter ID Card/High School Certificate
  • Document for Identity Proof: Aadhaar Card/Passport/Driving License/Voter ID Card/PAN Card
  • Document for Address Proof: Aadhaar Card/Passport/Driving License/Ration Card/Electricity Bill/Telephone Bill
  • Document for Income Proof: Bank Statement Slip/Salary Slip/Income Tax Return File
  • Medical Reports: Some insurance providers may ask for medical reports before you can buy a pension plan from them

What is 'Pension'?

A pension is a fund into which a sum of money can be added during your employment years and you can draw periodic payments from this fund once you have retired. This way, a pension continues to provide an income to support you even after your retirement.

Does pension end after the policyholder's death?

No. Pension does not end after the policyholder's death. Depending upon the type of pension plan selected, either the spouse or a chosen nominee is entitled to the pension after the policy holder's death.

Can a person have multiple pension plans?

Yes. A person can have multiple pension plans with private banks and other commercial pension plan policy providers. However, when it comes to the National Pension Scheme or other pension schemes by the Government of India, a person cannot have more than one.

What if I surrender my pension plan before maturity?

If you choose to surrender the plan before its maturity, the entire surrendered value is added to your annual income and you have to pay tax on it as per your income slab. You will also have to pay back any tax exemptions that you might have availed on the premiums you have paid in the past.

What are the tax benefits accompanying pension plans in India?

Depending on the type of plan chosen, pension plans in India provide certain tax benefits. In most cases, any contributions towards a pension fund can be deducted from your gross income leading to tax savings. At the time of maturity, you can also withdraw up to one-third of your accumulated pension without paying any tax*.

What is participating and a non-participating pension plan?

A participating plan enables the policyholder to share the profits of the insurance company in the form of bonuses or dividends. In a non-participating plan, the profits are not shared and no dividends are paid to the policyholder. Both these types of plans provide guaranteed life cover.

What is 'Pension'?

A pension is a fund into which a sum of money can be added during your employment years and you can draw periodic payments from this fund once you have retired. This way, a pension continues to provide an income to support you even after your retirement.

Does pension end after the policyholder's death?

No. Pension does not end after the policyholder's death. Depending upon the type of pension plan selected, either the spouse or a chosen nominee is entitled to the pension after the policy holder's death.

Can a person have multiple pension plans?

Yes. A person can have multiple pension plans with private banks and other commercial pension plan policy providers. However, when it comes to the National Pension Scheme or other pension schemes by the Government of India, a person cannot have more than one.

What if I surrender my pension plan before maturity?

If you choose to surrender the plan before its maturity, the entire surrendered value is added to your annual income and you have to pay tax on it as per your income slab. You will also have to pay back any tax exemptions that you might have availed on the premiums you have paid in the past.

What are the tax benefits accompanying pension plans in India?

Depending on the type of plan chosen, pension plans in India provide certain tax benefits. In most cases, any contributions towards a pension fund can be deducted from your gross income leading to tax savings. At the time of maturity, you can also withdraw up to one-third of your accumulated pension without paying any tax*.

What is participating and a non-participating pension plan?

A participating plan enables the policyholder to share the profits of the insurance company in the form of bonuses or dividends. In a non-participating plan, the profits are not shared and no dividends are paid to the policyholder. Both these types of plans provide guaranteed life cover.

No matter what your need is, we have a solution

View details of our Retirement plans:

Ipru easy retirement

A plan that provides regular income for you in your golden years with the potential growth of equity and debt funds, and also ensuring that you do not lose your money no matter what.* 

  • Choice of investment strategy that suits your needs
  • Guarantee on the money you invest
  • Pension Boosters to increase your retirement savings

*Assured Benefit amount assumes all due premiums as per the premium payment term are paid.

Ipru easy retirement

Make sure that you and your spouse live a comfortable life in your golden years with a regular income to take care of your daily expenses and more. You can also leave a legacy for your children.

  • Critical illness benefit
  • Pension with annual increase
  • No market risk
  • Start as early as age 30

 

** Tax benefits under the policy are subject to conditions under Section 80CCC, 10(10A) and other provisions of the Income Tax Act, 1961. Applicable taxes will be charged extra as per prevailing rates. Tax laws are subject to amendments from time to time.
COMP/DOC/Oct/2019/2510/2827
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