The standard age of retirement which used to be within the range of 55 to 60 years, is now decreasing as more and more individuals plan to stop regular 9 to 5 work at an early age group, and spend the later component of their life fulfilling their dreams. Retirement planning through a pension structure guarantees regular income to the policy owner in the form of annuity or pension check.
Types of Annuities or Pension Programs:
Life Annuity: It ensures the stipulated regular income to an person throughout his life. In case of loss of life of policyholder, the invested quantity is refunded to his nominee.
Guaranteed Period Annuity: It provides regular fixed income throughout an individual’s existence and also guarantees payment for a specific number of years to the nominee in case of the policyholder’s death.
Deferred Annuity: With this type of annuity the policyholder ‘defers’ or postpones the annuity up to a certain time period, hence it does not commence immediately. The premium payment options in such a policy are either regular annual premiums or a single huge premium.
Annuity Certain: In this kind of plan, a stipulated amount of annuity is paid for a fixed term (in years) irrespective of how long the policyholder lives.
Factors to be considered whilst investing in a Pension Plan:
᾿ Compare the premium in various pension strategies and then select the one that best matches your requirements.
᾿ Check whether the strategy is with cover or without cover. The former offers the sum assured to become paid to the nominee in the case of a good eventuality, while in the latter case there is absolutely no sum assured and the nominee gets only the amount net of past due premiums and expenses.
᾿ Check the performance of the various pension techniques offered by the insurer.
᾿ A traditional pension scheme invests a considerable portion of the premium in government investments (G-Secs) and bonds, thus yielding low returns.
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Comparatively, investing in an ULIP pension plan provides higher profits (if the investment in ULIP is well diversified).
᾿ Investment decision in an ULIP pension insurance policy ought to be made only after considering the various charges involved like allocation cost, fund management charge etc .
᾿ Check the charges and deductions applicable on surrendering the policy before maturity in case of emergencies.
᾿ Look for tax benefit provisions in the Pension Plan. Premium payments towards the Pension plan are eligible for refund under Section 80CCC.
There are also a few initiatives taken up by the government to market old age income security, like New Pension Scheme (NPS). It is a defined factor based pension plan. The NPS is regulated by Pension Account Regulatory and Development Authority (PFRDA).
It is important that individuals evaluate pension programs from a retirement benefit perspective plus invest at an early age. In other words, the earlier you take the step of investing in a pension check plan, the better retirement benefits you reap on maturity of the program.