The insurance landscape has changed dramatically in India, with companies offering customised, flexible solutions to customers' many needs. A developing area of insurance is that of pension plans. Previously, this was a grey area for many customers and insurance companies – there were not many pension plans available and the returns were often poor.
But today, there are excellent pension plans available in India, and these are helping thousands of retirees lead safe and secure lives post-retirement. Instead of having to make do with low savings and the returns from investments made, these pension plans help optimise the money invested in them for a peaceful retirement.
What are pension plans?
Pension plans are insurance policies that one invests in to secure their post-retirement future. Since income stops after retirement, one is entitled to a pension that lets one subsist comfortably. However, a pension is granted only to Government employees in India. If you work for the private sector, you will receive your dues (EPF, gratuity, etc.) at the time of retirement but you will not be entitled to a monthly pension. Hence, you must invest in a pension plan by yourself. Prominent insurance companies in India offer good pension plan products that can help one plan for their retirement even when they are employed.
Types of pension plans
In India, there are several types of pension plans offered by various insurance companies. However, the pension plans normally fall under two categories:
Immediate Annuity Plan.
In this, the policy holder pays a single lump sum amount. On payment of this amount, the plan commences an immediate pay-out per month. This pay-out comes to the policy holder as long as they are alive. There are three types of immediate annuity pension plans: Guaranteed Period Annuity, Certain Annuity and Life Annuity.
Deferred Annuity Plan.
The name is self-explanatory; the pension on this plan is paid after the policy holder retires, but it is accumulated over a period of years. The policy holder pays premiums for the plan tenure, and the pay-out takes place in terms of monthly payments.
Apart from retirement schemes and pension funds allocated by insurance companies, one can choose to invest in Government-backed savings schemes as well. These offer reliable and steady returns after maturity. For example, the rate of interest on Public Provident Fund (PPF) deposits is in the range of 8 to 9% (it is recalibrated annually basis the performance of Government bonds). Similarly, one can consider investing in Kisan Vikas Patra or National Savings Certificate.