Have you considered investing in a pension plan to live your golden years comfortably? If yes, then you’re definitely on the right track since these plans continue to be relevant even today. Let us take a closer look at the same.
Why Pension Plans Still Matter for Professionals
Let us take a look at some facts in this regard. The PFRDA (Pension Fund Regulatory & Development Authority) has already developed a new Working Paper series from 2022. At the same, it is clear that the pension sector in the country (APY and NPS) offers more flexible income security in old age for both common individuals and salaried professionals. It also states how the number of pension plan subscribers has gone up four-fold in the period between 2017-18 to 2021-22. At the same time, it has highlighted how annual return rates of 9-12.7% in several NPS schemes and 9.4% in APY have been attractive compared to other savings and investment instruments.
The paper also highlights how there should be a concerted effort towards the shift towards a pension-driven society. The future expansion of pension plans across NPS and other plans offered by insurers and other financial companies is also anticipated throughout the private sector. These plans already assume huge relevance in the public and allied sectors. Self-employed personnel will also increasingly look at these plans to enjoy future security after retirement.
According to reports, the Indian pension system has also evolved rapidly over the last few years, with three key schemes attaining prominence, namely the NPS, OPS, and the UPS, which have been proposed. Going forward, pension plans will remain relevant, with the Government and financial sector players scaling up awareness initiatives to reach younger professionals.
A Little More About Pension Plans Today
There are several kinds of pension plans available today, including Government-backed schemes like the National Pension Scheme or NPS and the Atal Pension Yojana (APY). At the same time, there are several plans offered by life insurance companies and other entities in the financial sector. These plans are usually about paying a fixed sum to subscribers after their retirement. Insurers have plans that come with dual investment and insurance coverage components, which are hugely popular among people these days.
Here are some key aspects that illustrate why these plans will continue being relevant even today:
- Deferred annuity plans help you invest to create a retirement corpus, while you also enjoy life coverage simultaneously. Once the policy term gets over, you will get pension payments regularly. Some portion of the corpus can be withdrawn, while the rest is converted into an annuity for a pre-defined period or the entire lifetime of the policyholder. There are also specific lock-in periods for these plans.
- Immediate annuity or pension plans are where you can invest a lump sum that you get a retirement and receive pension payouts thereafter. The premiums paid for the same are also tax-exempted in most cases. In case the shareholder passes away, then the nominee will keep receiving the pension payments across the entire remainder of the policy duration.
- There are guaranteed period annuities where the pension plan is applicable for a particular period, irrespective of the demise of the policyholder within this duration. The regular tenure is around five years, although it may be increased to 10 years and more, depending on the plan features and provider. The same holds true for annuity certain plans, with the nominee getting the pension payments for a fixed period, even if the policyholder passes away.
- Life annuities offer continuous payments until the policyholder demises. There are choices with spouses, such as where the spouse will keep getting these payments in case the policyholder passes away.
- There are several PFRDA-regulated pension funds as well, which offer relatively higher returns at maturity. You may invest smaller amounts or a lump-sum amount, after which a consistent income stream is ensured after retirement.
- The NPS offers options to invest in debt or equity funds as per your risk appetite and preferences. You can withdraw up to 60% of the money at retirement, while the other 40% is used to buy an annuity.
There are several pension plans that are available under mutual funds and post offices today as well. With varying flexibility, liquidity, and features, these plans are expected to maintain their relevance strongly in the current retirement landscape.
