What are pension plans, and how does it work?

Updated on February 18, 2020

An overview of the pension plans:

If a person doesn’t want to live on their son income after retirement, then how he can sort out his expenses? Very simple, by opting a pension plan. Yes! A pension is a retirement plan that gives you a lump sum amount at the time of your retirement. And let you live a life with a peace of mind. The significant reasons to design the pension plan is to give financial support to the people after their retirement. 

What is a pension plan? 

A pension plan is designed to support you financially when you spotted working. This plan comes with a lot of flexibility while paying premiums and come with many benefits. There are so many insurance companies in India which also offer customized pension plans to cater to the unique needs of each individual. In this high inflation world, it is advisable to opt for the pension plans because it supports you financially after retirement.  

Types of pension plans:

There are so many pension plans are designed by the insurance companies to satisfy the requirements of the insurer. Below we have mentioned the important types of pension plans respectively. 

Pension plans with/without life cover: The pension plans with life cover comes with the assured life cover in the event of death during the policy term. 

Pension plans without life cover: The pension plans without life cover gives the assured sum to the nominee in the event of the death of the policyholder. 

Traditional pension plans: Traditional pension plans allow you to invest in government securities as per your risk appetite. 

Immediate annuity/ deferred annuity: The immediate annuity plan gives you a lump sum amount after paying a premium on the payment frequency (monthly/quarterly/ half-yearly) 

How do pension plans work?

Let’s understand the working principle of the pension plans with this example- If age is 32 years old and his income Rs. 50,0000 per month. If your expected lifespan is 80 years and wants to retire at age 60 years. If you wish to receive 50,0000 rupees per month after retirement, then how much you need to invest. If inflation is 6%, you need to save an amount Rs. 7.15 crore to receive Rs. 50,000 rupees per month. We hope now you understand the working process of the pension plans. 

Features of the pension plans:

  • The premiums paid in the lump sum amount. 
  • The premiums you will pay is exempted from tax. 
  • Minimum entry age for opting this plan 30 years and maximum entry 85 years. 
  • No medical examination test is required for opting this plan. 
  • The minimum necessary sum assured you would get after the maturity period is 1 lakh. 

Benefits of the pension plans:

There are so many benefits of the pension plans, and the most important are listed below:

When people retire, they experience the need for money. But, if they choose a pension plan at the age of 30, they will get the enormous assured sum after retirement, which gives them an exceptional level of financial security. 

Pension plans enable individuals to live a hassle-free life after retirement. 

It protects seniors from life uncertainties. 

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