Ch. 1: Pension Accumulation Plans - Why Should You Invest?

Retirement is no longer considered a phase where one stays at home. People are leading more active post-retirement lives, and the average life expectancy has risen as well. It’s crucial to have a steady financial plan for these years, while factoring in increasing costs, to maintain or improve your current lifestyle!

A Pension Accumulation Plan will help you achieve your retirement goals. We already know what the plan is. Now, let’s have a detailed look at why you should consider investing in this plan.

You are looking for a lump-sum amount to cater to your retirement goals

A Pension Accumulation Plan systematically accumulates a retirement fund by investing your savings, thereby giving you long-term benefits. It gives you a lump sum fund when the policy matures, i.e., when the policy duration ends. This money can help you with a multitude of things, for instance, travelling the world with your spouse, pursuing a hobby, purchasing your dream car or house, paying off loans, or investing the money in another avenue like an annuity plan to get a regular stream of income, etc.

These plans offer a disciplined way to save your hard-earned money for long-term use. You have to pay the premiums on a regular basis - annual, half-yearly, quarterly, monthly - depending on the customisation option you choose and the policy document. And, in return, the insurance company pays you the maturity benefit as a lump sum to cater to your retirement needs. Rather than keep your savings sitting idly in the bank, you can invest it to grow or preserve your wealth.

During the years where you’re actively working, you’re likely to get used to a better lifestyle and a healthier standard of living. Your income, physical health, housing, personal safety, food, accessibility to facilities, etc. will only improve. And you will want to continue this same lifestyle once you have retired. And, to do so, it is important to start investing in a Pension Accumulation Plan. This will lead to a financially secure and stable future

Countries across the world - like the USA, the Netherlands, Canada, etc. - have social security systems that pay a monthly income to retired people. India currently doesn’t have such a system. Even if there will be one in the future, it’s futile to rely on this hope - which is why you should invest in a good retirement plan, to always have a safety net.

Medical advancements and technological developments have increased life expectancy, which means that you will have a longer retirement. This, in turn, will require you to accrue a larger amount of money to cover those years. A Pension Accumulation Plan helps you with just that.

Retirement is synonymous with next to no income. With inflation skyrocketing, you should begin planning for your retirement as soon as possible to maximise your savings. Even if you plan on living with your children, you surely don’t want to burden them with your expenses. Nor would you want to sell any property or assets you own for the same. A number of people resort to these options because of poor financial planning.

This is why you should begin investing in a Pension Accumulation Plan while you’re still earning. Doing so will help you independently build a substantial retirement fund, so all your expenses are covered - right from grocery bills to hospital costs

These plans are a great way to reduce your taxes! They offer tax benefits* under the Income Tax Act, 1961 -

a. Section 80C - The premiums you pay are exempted from taxation
b. Section 10(10A) - The amount you can withdraw from the maturity amount is exempted from taxation.

So this was all about why you should invest in a Pension Accumulation Plan. If these reasons seem to be up your alley and fit your financial goals as well as budget, go for it - to make your retirement happy, comfortable, and secure! We’ll have a look at the benefits this plan offers - in the next article.