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Retirement and Pension Plans in India- What are Your Options?

Retirement Plan is the best investment product in India to secure the employer's financial future, read the article to know more about different types of retirement plans.

  • Aug 27, 2021

Whether you have a booming business or a secured job in the government or private sector, your income is bound to fall once you retire. A good retirement/pension plan can help you plan your finances for the post-retirement years to stay self-reliant and enjoy your retired life. Read further to explore the different types of retirement plans available in the market.

Post-retirement time is an excellent opportunity to focus on your happiness, pursuing hobbies, spending time with friends, and most importantly, having good leisure time. But it is crucial to have an income source post-retirement to make the most of your time without worrying about your living expenses. Retirement plans or pension plans that banks and financial institutions offer can be a great way to secure your post-retirement years financially. It is a kind of investment plan that allows you to grow your funds over the years, which is paid back in monthly, quarterly, or yearly pensions. But before opting for a plan, it is essential to understand the different types of retirement plans to select a suitable one.

Let’s look at some of the common types of pension plans available in the market-

Traditional Pension Plans:

  • It is one of the popular pension types that allows an individual to invest in the plan by paying premiums for a chosen tenure, depending upon the corpus required at retirement. The vesting benefits are available once the term completes.
  • Traditional plans may be participating or non-participating- A participating plan offers bonuses/dividends in addition to the guaranteed benefits. And a non-participating plan offers only the guaranteed benefits.
  • It may be offered with additional riders such as death benefit rider, disability benefit rider, etc.
  • These plans invest in comparatively safer funds such as government securities and bonds.

Immediate Annuity Plans:

  • It is a single premium plan with no accumulation phase. After the single purchase price, the annuity starts immediately after a month or so, as per the policy.
  • There may be different options available with the plan, such as lifetime income, the continuation of payouts to the spouse in case of death of the primary annuitant, etc.

National Pension Scheme (NPS):

  • It is a social security initiative by the Govt. of India and available to employees in public, private, and unorganised sectors.
  • It is similar to a systematic investment plan where you invest monthly and avail yourself regular pension during your retirement years.
  • A portion of the NPS fund is invested in equities that can deliver better than traditional instruments such as FDs or PPFs.

Life Annuity:

  • It is the most common pension plan that guarantees the annuitant a lifetime income after retirement.
  • It often comes with a joint-annuity option that allows the spouse to receive the pension income in case of the policyholder’s death.

Read through the Detail Features Before Selecting a Plan

The features of the different types of retirement plans discussed above, though distinct, can overlap under a single policy. For example, a traditional plan or an immediate annuity plan can also offer lifetime income (Life Annuity). In our discussion above, we have included the generic features of these plans, but detailed terms and conditions may vary with different banks/financial institutions. Hence, you must carefully study the offerings of each plan before buying one.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

Kotak e-Invest

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Ref. No. KLI/22-23/E-BB/521


- A Consumer Education Initiative series by Kotak Life

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