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How To Choose The Right Pension Plan?

A pension plan is a smart way to receive a steady income for covering your post-retirement expenses. Read more to know how to choose the best pension plan for yourself.

  • Nov 26, 2021

A pension plan is a smart way to build a retirement corpus and use it for receiving a steady income for covering your post-retirement expenses. But with so many options now available, how will you pick the right pension plan?

Here are four factors that can help you make the decision-

1. Asset Selection Flexibility

One of the most critical features a pension plan should offer is the flexibility to choose your preferred asset classes so that you can diversify your investment. For instance, if you are in your 20s-30s, you can have a more aggressive investment approach, with equity being the significant component of your portfolio.

In the 40s-50s, the stability and safety offered by the debt class can help you keep your investment protected. The plan provider should offer this option to choose and switch between asset classes to help you make the most of your investment throughout the various stages of your life.

2. Guaranteed Additions and Bonuses

Many pension plans also come with guaranteed additions to the sum assured for up to 5 years from the plan purchase date. The additions are mostly a certain percentage of the basic sum assured and are payable either on demise or vesting.

Moreover, you can also find plans that offer additional bonuses from the 6th year of the policy. Note that these additions and bonuses are generally over and above the assured plan benefit, which can be up to 105% of the basic sum assured.

3. Life Cover and Add-ons

Pension plans are available with and without life cover. It is generally recommended that one choose a plan with life cover to ensure financial security for the family. With these plans, the nominee will receive the basic sum assured, along with the additions and bonuses, on the policyholder’s unfortunate demise.

Some insurers also offer additional riders such as accidental death benefits and permanent disability benefits for extra security.

4. Entry Age and Vesting Age

Like most other types of investments, the sooner you purchase a pension plan, the higher the probability of building a large retirement corpus. All the insurers have different entry age limits. In most cases, you should be able to purchase a pension plan if you are 30 years and above. However, you’ll mostly not be allowed to buy a pension plan if your age is already 55-60 years.

The vesting age is the age after which you’d like to start receiving the pension. In most plans, the vesting period is between 45-70 years. Do check the entry age and vesting age while browsing through the options to choose one that best meets your requirements.

Ensuring Financial Stability After Retirement with a Pension Plan

While there are options like PPF and EPF for private employees, inflation will hugely impact the corpus these investments generate for your retirement. A pension plan is a smart addition to any retirement plan to boost your corpus and ensure financial stability essential for living a comfortable retirement life.

Focus on the factors discussed in this post while comparing pension plans offered by top insurers to make the right decision.

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Ref. No. KLI/23-24/E-BB/1052


- A Consumer Education Initiative series by Kotak Life

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