Retirement opens up a new phase of life in an individual’s life. You finally have the time to check all the things on your bucket list. Hence, you need adequate funds so that you don't have to compromise on your lifestyle during those post-retirement years.
In the absence of a regular source of salary or income, you have to rely entirely on your savings and investments.
Living costs will rise by the time you retire. You also have to take into account medical emergencies and other unforeseen expenses. Thus, to fund your old-age expenses, you need careful planning.
Pension funds can provide a supporting income, letting you enjoy complete financial freedom in your golden years.
Let us understand a bit about pension funds.
What are Pension Plans?
Pension funds are financial tools that help you in accumulating funds for your post-retirement years. By investing a certain amount regularly towards your pension fund, you will build up a considerable sum in a phase-by-phase manner. They generally have two stages–
- Accumulation stage: You pay a specific amount regularly until you retire.
- Vesting stage: Once you retire, you get a steady flow of income for life.
Who Should Consider Pension Plans?
Pension or annuity plans are valuable financial tools that can help you achieve your retirement goals. They provide you with the required financial support to live a financially independent life even during your retirement.
You want to continue your current lifestyle even during retirement. You may also have post-retirement goals, such as buying a house, traveling, pursing a hobby, starting a new venture and more. Pension plans provide you with regular income to help fulfil your financial needs during your retirement. You should consider buying an annuity plan if you are looking for a worry-free retirement.
Types of Pension Plans in India
The government of India introduced the National Pension Scheme (NPS) as a financial cushion for retired persons. Some of its features are as follows:
- You have to invest in this scheme until 60 years of age.
- The least sum you must invest is ₹ 1000/-. There is no upper limit.
- Your money will be invested in debt and equity funds based on your preference.
- The returns depend on the performance of the funds you choose.
- When you retire, you can withdraw 60% of your savings.
- You must use the remaining 40% to buy an annuity – a retirement plan offering periodic income.
2. Public Provident Fund (PPF)
PPF is a long-term investment scheme with a 15 years tenure. Thus, the impact of compounding is enormous, especially towards the end of the term.
Every year you can invest a maximum of ₹ 1.5 lakh in your PPF account. You can pay upfront or through twelve instalments staggered over the financial year. Your PPF investments are eligible for deductions* under Section 80C of the Income Tax Act, 1961 (ITA).
The government sets the interest rate on PPF every financial quarter, based on the profits from government securities. The funds are not market-linked.
3. Employee Provident Fund (EPF)
EPF is a government savings platform for salaried employees. Both your employer and you have to make equal contributions towards your EPF account. Your share is deducted from your salary every month. The Employees' Provident Fund Organisation (EPFO) sets the interest rate on the investment. On retirement, you receive the total funds contributed by you and your employer along with the accrued interests.
4. Annuity plans
Such plans provide a life cover along with a regular source of income. If an unfortunate event occurs while the plan is active, your family member receives a lump sum payout, however, there are other options too that do not offer this financial coverage. Annuity plans are of two types:
A. Deferred Annuity
It is a contract with an insurance provider helping you build a retirement corpus. You can make a single lump sum payment or pay regular premiums over a fixed time frame – the policy term. Thus, this scheme helps you invest as per your resources.
When the policy period ends, your pension starts. If your retirement date is far in the future, this plan is suitable for you.
B. Immediate annuity
It is a contract between an individual and an insurance company, wherein the individual pays a lump sum amount and receives guaranteed~ income for a lifetime, starting almost immediately.
ICICI Prudential Life's Guaranteed Pension Plan is one such retirement policy that offers both Immediate and Deferred Annuity options. It offers several benefits:
- A lifelong guaranteed~ income
- Eleven annuity options, including pension for your spouse/family member or return of purchase price to your nominee in your absence
- Options to avail income on a monthly, quarterly, half-yearly, or annual basis
- Top-up option to systematically increase your annuity income
- Attractive discounts for NPS subscribers or existing customers
- Tax benefits* on the premiums paid
- Option for lump sum payout on the diagnosis of critical illnesses or permanent disability is covered under the plan
- Options to get back the purchase price earlier in your lifetime
Thus, this plan secures you against all age-related exigencies and can be a lucrative financial cover in your retirement years.
~ T&Cs Apply
ICICI Pru Saral Pension
This is an annuity plan that can help you create a steady income during your retirement years. The plan offers a one-time lump sum premium payment option in return for a guaranteed~ income for life.
~ T&Cs apply
The income you receive during retirement is fixed and begins immediately after purchasing the plan. It is a well-rounded plan with features including flexible payout options and tax* benefits.
ICICI Pru Guaranteed~ Pension Plan Flexi
With this annuity plan, you can save money regularly during your earning years and receive regular income throughout your retirement. The plan offers multiple options to receive annuity payments, such as on a monthly, quarterly, half-yearly and yearly basis.
ICICI Pru Guaranteed~ Pension Plan Flexi offers the ‘Save the Date’ feature that allows you to select a specific date during your retirement to start receiving your annuities. The plan also offers the option to invest any surplus amount in the plan during the policy period, which leads to an increase in the income from the plan.
~ T&Cs apply
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*Tax benefits are subject to conditions under Section 80C, 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.
~ Annuity will be payable in arrears. The frequency of annuity payments can be monthly, half-yearly, quarterly or annually as chosen by the annuitant at the time of purchasing the annuity. The annuity amount chosen at policy inception is guaranteed for life.
ICICI Pru Guaranteed Pension Plan UIN: 105N181V03
ICICI Pru Guaranteed Pension Plan Flexi (non-linked non-participating individual deferred annuity plan) - UIN: 105N187V04
ICICI Pru Saral Pension Plan (non-linked non-participating single premium individual immediate annuity plan) - UIN: 105N184V05
– the official handbook!