Retirement Plans/ Pension Plans

Retirement planning is an essential part of financial planning. An increase in average life expectancy increases the need for retirement planning. Planning for retirement not only ensures an additional source of income but also helps in dealing with medical emergencies, fulfil life aspirations and be financially independent.

Retirement Plans are a category of life/annuity 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?

• The average Life expectancy is increasing: 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. Average Indian lives up to the age of 78. 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 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.
• Do not depend on children.
• Contribute to the family even during retirement
• Best time to fulfil life aspiration.

Benefits of Retirement Plans:

• Stress-free life - This is the most significant outcome of retirement planning. Retirement planning helps to lead a peaceful and stress-free life. With having investments that earn regular income during retirement leads to a worry-free life. Retirement is the age where one has to relax and reap the benefits of all the hard work.
• 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 limo-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.
• Money works for you - Starting small also helps in generating significant returns in the future. Hence a retirement fund should be a well-diversified portfolio, that’ll have the capacity to generate returns during retirement.
• Cost-saving - Planning for retirement at a young age will help in reducing the cost. For example, in an insurance policy the premium amount to be paid will be lesser when the policyholder is younger. While getting insurance during retirement becomes costly.
• Inflation beating returns - Investing in retirement will help in earning inflation-beating returns. Holding money in a bank savings account will not generate high returns. In other words, the interest earned will not be enough to lead an uncompromised retirement. Therefore, proper investment planning will help one to generate significant returns in the long term. Also, it is important to start investing early. This helps in averaging out the impact of market volatility.

Deferred Annuity

Get a guaranteed income for life with the option to defer income by upto 10 years. You also have a choice of getting back your purchase price on diagnosis of a Critical illness (CI) or Permanent Disability due to accident (PD) and use it for treatment~.

• Single premium plan to get guaranteed income for life with the option to defer income by upto 10 years
• Lock in the current interest rates for the annuity to be received later
• Annuity plan can cover either single or joint life
• Flexible payout options to suit your need
• Tax benefits on premium paid u/s 80CCC of Income Tax Act, 1961

Immediate Annuity

Get a guaranteed income for life immediately. You also have a choice of getting back your purchase price in your survival years1

• Single premium plan to get guaranteed income immediately for the rest of your life
• Annuity plan can cover either single or joint life*
• Flexible payout options to suit your need#
• Tax benefits^ on premium paid u/s 80CCC of Income Tax Act, 1961
• Purchase annuities from your savings or accumulated NPS corpus

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.

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.

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 up to a period of 10 years through regular premiums and your pension starts after the term is over.
• Joint Life Annuity: Your pension is paid to you for your lifetime. In case of an unfortunate event, your spouse is entitled to the pension.
• National Pension Scheme: Managed by the central government, you can invest regularly to build a corpus, at the time of maturity you can withdraw up to 60% of the amount as lump sum and purchase an annuity plan with the remaining corpus to receive lifelong income.

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 18 while the maximum entry age is 70.
• Minimum and Maximum Vesting Age: The minimum vesting age is 30 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

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