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Types of Pension Plans for Your Retirement

Understanding the types of pension plans for retirement can help you narrow down the search for the right plan for a financially independent retirement.

  • 3,051 Views | Updated on: Jan 15, 2024

Retirement can open up some new exciting possibilities in life. However, it is essential to be financially independent and stable during your retirement to enjoy your newfound freedom from the responsibilities you have shouldered all your life.

For this, it is vital to have a pension plan that can take care of your regular finances through regular pension pay-outs once your retirement commences.

While people today are interested in exploring different pension plans on offer, understanding the types of such plans can help narrow down the search for the right one significantly.

Participating Pension Plans

Participating pension plans share the fund’s profit with the insured person in the form of bonus payment. The bonus is provided in addition to the sum assured and death benefits.

Additionally, the insured person can opt for some optional riders as well.

Non-Linked Non-Participating Plans

  • Immediate Annuity Plans

  • One of the most popular pension plans in India, here an individual pays a one-time lump sum amount as premium payment and immediately starts receiving a fixed pension until his/her death or 99 years of age, whichever is earlier

    The amount of pension to be received depends upon various factors such as The premium amount The chosen annuity option, such as

      The age of the policyholder during the purchase of the plan.

      Lifetime pension

      Lifetime pension with cash-back

      Lifetime pension with term guarantee

      Lifetime pension with a full pension to the surviving spouse

      Lifetime pension with a half pension to the surviving spouse

      Cash-back to the nominee after the death of both spouses

  • Deferred Annuity Plans

  • In these plans, the individual starts getting a pension after a pre-agreed deferment period, varying from 1 to 10 years. The rest of the terms and conditions are similar to that of an immediate annuity plan.

Other Government Schemes

Apart from the pension plans discussed above, there are also some government schemes and plans like EPF, PPF, or NPS.

While government pension plans can also be a good option, they generally have a maximum cap on investing. For instance, you can’t invest more than Rs. 1,50,000 in a PPF account in a financial year.

Therefore, you might fall short of achieving your retirement corpus by solely relying on government plans.

Get an Edge over Market-Linked Financial instruments with Pension Plans

While market-linked financial instruments can help you get potentially higher returns, they also come with risks related to market volatility. On the other hand, pension plans provide the safety of stable returns that are completely insulated from market volatilities. Hence, it is important to include a mix of both while building your retirement corpus.
Therefore, start by analysing your finances and choose the type of pension plan that suits your needs. After all, you don’t just buy a pension plan, you invest in the peace of mind in old age.

- 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