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What Are Retirement Pension Plans?

A retirement pension plan is an investment-cum-insurance plan where you grow your savings to receive pensions upon retirement. Also, read about the types of pension plans.

  • Nov 30, 2021

As the name suggests, a retirement pension plan is an investment-cum-insurance plan where you accumulate your savings to receive pensions upon retirement. It assures a secured financial future while allowing you to park your savings safely.

Why are Retirement Pension Plans Important?

Even if you’re earning a good income right now, investing in a retirement plan is highly recommended. When planning your retirement, it is essential to focus on your income to cover your expenses. Let’s look at some reasons why pension plans should be an integral part of your retirement planning.

1. Take Care of Growing Expenses

If you think your expenses will decrease after retirement, you’re wrong. From medical costs to increased incidental expenses, you may have to incur various expenses during old age. And, if you are not sufficiently prepared for it, you can face financial distress.

2. Maintain Your Lifestyle

When you’re playing the second innings of your life, you want it to be free of any worries. A pension plan can surely guarantee a more financially secure future, one that you can look forward to instead of dreading.

3. Inflation is Your Enemy

Have you seen your grandparents complain about the rising prices? Well, inflation is the biggest enemy of retired individuals once the primary income stops coming. A sound retirement plan ensures you don’t have to compromise and can have enough resources to tide through the ever-rising price wave.

Types of Pension Plans

There are many types of retirement plans, but they all can be classified into two types-

1. Deferred Annuity

In this plan, the annuity is deposited into the policy for a fixed number of years or by a single premium payment. The corpus collected is transferred to the policyholder after the policy tenure is over. One-third of corpus from deferred annuity plan is exempted from tax, and only the remaining two-thirds is taxable.

2. Immediate Annuity

Under this policy, the pension is provided immediately. The policyholder deposits a large sum of money and receives the pension instantly based on the amount deposited. As per the Income Tax Act of 1961, the premiums paid under immediate annuity are tax exempted. Many options under an immediate annuity let you dictate what happens to the money in case of the policyholder’s demise during the policy tenure.

Factors to consider before Selecting a Pension plan

  • Monthly Expenses and Lifestyle
  • You may not be able to hash out the exact monthly expense but having an idea will help you put that sum aside for your monthly needs.

  • Life Expectancy
  • While you can never actually predict your life expectancy, having an idea or a vision will help you decide on a pension plan that suits your needs.

  • Medical Bills
  • If you are in regular need of medical care or follow-ups or you support someone financially who needs the same care, factor in the medical expense along with monthly expense.

  • Loans and Debts
  • If you have any student loans, house loans or other miscellaneous loans pending, always account for the monthly EMI you pay to the bank before deciding on an annuity.

Invest in the Right Pension Plan from a Reputed Company

Ensure you buy the plan that suits your financial needs and objectives. While some plans provide income for a lifetime, others offer assured benefits to the nominee on the policyholder’s death. Also, ensure you choose a reliable company that has been here for long enough and will remain here for generations to come.

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

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


- A Consumer Education Initiative series by Kotak Life

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