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Different Types of Retirement Schemes

There are various types of retirement plans in India, but they work out differently for each. Read this article to learn about the different types of retirement plans available in the market today.

  • 5,064 Views | Updated on: Jun 13, 2024

Retirement plans are schemes that are designed to pay a lifelong monthly income to you after you have fully retired from your active work life. By investing in a retirement scheme, you have to pay a specific amount of money from your savings until the time you retire, and this accumulated money is later given back to you as a pension.

The various types of pensions in India not only financially secure your future but also enable you to have the lifestyle you want. While the aim of all the pensions in India is to guarantee a stress-free retirement life, the schemes may differ to suit different needs. Given below are some of the important bases on which these schemes differ from each other.

  • Payout requirements of the subscriber (lump sum/annuity)
  • Insurance inclusive or non-insurance inclusive
  • Payout timing (deferred/immediate)
  • Returns on the plan
  • Risk Appetite

Best Retirement Plans in India

Here are a few types of the best retirement plans in India that you can consider.

Deferred Annuity

In a deferred annuity, you have to pay a regular premium or a single premium over the policy term to build a corpus. Post-completion of the policy tenure, you receive the money as a pension. Furthermore, there is the benefit of tax exemption - one-third of the corpus is tax-free on withdrawal.

Immediate Annuity

In this type of retirement insurance policy, you have to pay a specified amount in a lump sum and avail of the pension immediately. Here, you have a range of annuity options to choose from, and the premiums paid are tax exempted. Additionally, your nominee is liable to receive the money in the case of an eventuality.

8 types of retirement schemes - Infographic

Annuity Certain

In this pension type in India, the annuitant is paid the annuity for a certain number of years. The term period to be chosen is upon the annuitant, and in the case of your sudden demise, your beneficiary is entitled to receive the annuity.

Guaranteed Annuity

Under this kind of pension scheme, you are entitled to receive a pension for time periods like 5 years, 10 years, 15 years, or 20 years - regardless of whether you have survived the term period or not.

Life Annuity

This is one of the best income policies, as you will continue to receive your pension up until you live out your years. This scheme also provides you with the option wherein you can choose your spouse as your beneficiary. After your demise, he/she will continue to receive the pension.

National Pension Scheme

NPS is a retirement scheme initiated by the government. Here, the money you invest is put into debt funds and equity funds so that you generate larger returns. However, the proceeds post-maturity are not tax-free. Do note you can withdraw up to 60% of your investments post-retirement.

Employee Provident Fund

In EPF, a portion of your income is allocated to the EPF scheme, and your employer also matches the contribution. These funds are subsequently transferred to the Employee Provident Fund Organization (EPFO). Over time, the funds held by the EPFO earn a specific annual interest rate. So, your contributions, your employer’s contributions, and the interest earned all work together to build a substantial nest egg for your future.

Public Provident Fund

The Public Provident Fund (PPF) operates as a long-term savings scheme in India. The scheme has a fixed maturity period of 15 years, which can be extended in blocks of 5 years. PPF offers attractive interest rates determined by the government and follows a compounding interest model. This means that not only does your initial investment grow, but the interest earned on your investment also earns interest, significantly boosting your savings over time. Contributions made to PPF are eligible for tax deductions under Section 80C of the Income Tax Act, and both the interest earned and the maturity amount are tax-free, making it a tax-efficient investment.

Pradhan Mantri Vay Vandna Yojna

Commonly referred to as PMVVY, the Pradhan Mantri Vaya Vandana Yojana is ideally designed for senior citizens who possess a substantial retirement nest egg. This scheme allows you to invest a maximum of ₹15 lakhs. To participate in PMVVY, individuals must be at least 60 years of age when they join.

Senior Citizen Saving Scheme

Similar to the Pradhan Mantri Vaya Vandana Yojana (PMVVY), the Senior Citizen Savings Scheme is an initiative also supported by the central government. One of the primary advantages of investing in the program is the stability of the interest rate. Once you commit your funds at a specific interest rate, it remains unchanged for the entire duration of the program. Currently, the scheme offers an annual interest rate of 8.2%. The program has a five-year tenure, which can be extended for an additional three years after maturity.

Understanding different retirement plans - Infographic

Final Words!

When it comes to retirement planning, the younger you begin, the better it is. Starting early on your retirement planning not only allows you to take advantage of compounding interest but also provides you with more time to adjust your financial strategies and weather unforeseen circumstances. This ensures a more secure and comfortable retirement in the long run.

So, what are you waiting for? Take the first step towards securing your financial future today.

Key takeaways

  • In a deferred annuity, you must make periodic premium payments throughout the policy term or a single premium to accumulate funds.
  • In an immediate annuity, you are required to make a lump-sum payment and can start receiving pension payments right away.
  • The annuity recipient receives regular payments for a predetermined number of years in an annuity certain policy.
  • Guaranteed annuity plans offer the option to receive a pension for specific durations such as 5, 10, 15, or 20 years.
  • The Employee Provident Fund serves as a crucial financial instrument, ensuring financial stability and security in retirement.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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