Securing Your Retirement Income: How Pension Plans Provide Lifelong Financial Support

pension plan pensione signage near brown concrete building
Photo by Ricardo Gomez Angel on Unsplash

Pension plans are annuity plans that guarantee financial security in the post-retirement period of your life. Individuals who retire after a long tenure of working relentlessly wish to enjoy peace and comfort without worrying about finances. Financial advisors recommend advance planning to ensure you are comfortable in your golden period of life. Factors such as living expenses, increased medical costs, inflation etc., all drive the necessity to buy and have a pension plan.

Pension or retirement plans are types of life insurance curated to ensure that post-retirement plans are financially rewarding for the insured. We have outlined below the features and benefits of investing in pension plans.

Benefits and features of pension plans

  • Wealth maximization

Early investment in a pension plan generates the highest amount of return as the interest earned is further invested to get maximum returns. This is termed compounding, which generates a considerable amount of corpus for retirement.

  • Financial net

Pension plans generate regular income for the retired insured, providing coverage for day-to-day or unexpected expenses. Some pension or retirement plans are designed to provide a lump-sum payout for the family in the absence of income.

  • Tax benefit

The premium paid for life insurance is deductible under section 80CCC. Section 80CCC provides for a maximum deduction of up to INR 1.5 Lakh of premium payment made towards designated pension funds. Under section 10(10A), commuted or accumulated pension is exempt in the hands of government employees. For non-government employees, commuted pension is exempt under section 10(10A). Provided the employee receives gratuity, one-third of the commuted pension will be exempt; otherwise, one-half of the commuted pension will be exempt.

  • Insurance cover

Select pension plans offering insurance cover, inclusive of pension, at no additional premium cost. The insurance cover provides for any financial burdens on account of any unforeseen circumstances. The policy can also be equipped with additional riders to protect against accidents and critical illness.

  • Emergency liquidity

Pension plans may allow partial withdrawals from the accumulated value to combat financial emergencies. This makes them a reliable option during emergencies.

  • Annual payment

After retirement, the insured will receive annual or regular income throughout the duration of their retirement. The pension plans offer an option to opt for deferred annuity payment terms and the option to choose the frequency of annuity payments to the insured.

  • Flexible vesting age

Pension plans offer the option to choose the age at which the pension amount is paid to the insured. The date is termed as vesting age, and the insured has the opportunity to select the suitable vesting age as per your financial requirements.

Key things to know before purchasing a pension plan

Financial advisors recommend individuals to invest in pension plans at the earliest age to account for ever-increasing inflation and cost of living expenses. It is essential that a forecast of estimated expenses, current financial exposure and retirement goals be computed before investing. It is crucial to refer to the pension plan policy document before investing in any pension plan.

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