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Choosing The Best Retirement Plans For A Secure Future?

When choosing a retirement policy, it is important to know beforehand the various benefits and features of different pension plans before investing your hard-earned money. With the internet, it is easy to compare pension plans online and give you enough information about each plan.

What are pension plans?

Pension plans, also called annuities, offer financial security and stability by giving you an assured regular income even after you retire from active employment.

How does a pension plan work?

During the policy term, a corpus of funds is built up through a regular allocation of your monthly savings. This provides annuity for life through the compounding effect, which increases the more you save in the plan. So the earlier a pension plan starts, the better it is for you. Pension plans offer a guaranteed return on investment and grow with a tax shelter until the money is withdrawn.They are also protected from any of fluctuations in the financial markets.

What are the different types of pension plans?

Pension plans can be of two types – Immediate annuities or deferred annuities.In immediate annuity plans, the premium is usually a one-time payment and the pension or annuity begins one year after paying the premium in full. In a deferred annuity plan, the policy holder decides the time when the annuity begins to be paid. This can be tenure of 10, 20, or 30 years. Deferred annuity premiums can be paid both as a single premium or as regular monthly or yearly payments.

Pension plans can be divided into two categories depending on where the premium is invested Conventional pension plans invest in government securities and bonds, which give a lower return on investment but greater stability. Unit-linked pension plans (ULIP), on the other hand, invest in the stock market, apart from government securities and bonds. These give a higher return on investment. A few factors to be considered before investing in a ULIP are the amount of charges that will go towards fund management and the overall allocation in equities.

Another feature to look out for is whether the plan is offered with or without life cover. The plans which come with cover give an assured life cover in the eventuality of the death of the insured person. Plans which are without cover only offer whatever corpus has been built up till that point in time, in the case of death.

The type of income stream is also a factor to be considered. You can choose to receive the pension for life (lifetime annuity without any return of purchase price). There is annuity for life with return of purchase price, which means the purchase price of the annuity is given to nominees in the event of death of the policy holder, with pension being paid for life to the policy holder. There is also lifetime annuity guaranteed for a pre-defined number of years, with nominees getting the annuity in the eventuality of death before the pre-defined time is over. In joint life annuity, the pension is provided lifelong and in case of death, it goes to his spouse.

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*This is based on the difference between the highest and lowest premium's for a single person, age 25, looking for an individual health policy with the sum insured of Rs. 5 lakhs.
**This is based on the difference between the highest and lowest premium's for a single person, age 25, looking for a term plan, with the sum insured of Rs. 30 lakhs, and the premium paying term of 30 years.
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