{"id":5933,"date":"2019-04-08T09:00:36","date_gmt":"2019-04-08T03:30:36","guid":{"rendered":"http:\/\/capitalante.com\/?p=5933"},"modified":"2019-04-13T10:22:30","modified_gmt":"2019-04-13T04:52:30","slug":"pension-plans","status":"publish","type":"post","link":"https:\/\/capitalante.com\/pension-plans\/","title":{"rendered":"Pension Plans – Definition, Types, Benefits"},"content":{"rendered":"
Looking for pension plans which will enable you to meet the expenses after you have stopped working? Here we will discuss different types of pension plans, features, and benefits, and finally how to choose the right pension plan in India.<\/span><\/p>\n Pension plans are also known as Retirement plans which enable an individual to allocate a part of savings in order to provide a steady income after his retirement. Usually pension plans i.e. retirement plans offer an individual to allocate a part of savings in order to ensure a steady flow of money after retirement. There are two stages of pension plans namely the Accumulation stage and Vesting stage. In the accumulation stage, one individual pays premiums annually or monthly or quarterly until retirement. After retirement, the vesting stage starts. During the vesting stage, the individual receives a regular stream of income and after the death of the individual, the nominee continues to receive pension till death.<\/span><\/p>\n <\/a><\/p>\n In accordance with the investment portfolio and characteristics, the pension plans are classified into the following categories.<\/span><\/p>\n An annuity is a financial product offered by various insurance companies. An annuity is a contract between an individual and the insurance company itself after you make a lump sum payment or a series of payment to the insurance company. The main object of annuity is to secure the financial needs of an individual i.e. a steady payment after retirement.<\/span><\/p>\n You can opt for annuity plan either by paying a lump sum payment at once or continue contribution for a specific period of time by paying regular premiums. The duration of annuity may be for any specific period of time i.e. just to say for the upcoming 20 years or until the death. If you choose until death then you may get lower amounts. Let\u2019s make it clear with the following example.<\/span><\/p>\n Suppose you invest Rs. 10 Lakh at once and you opt for a period of 20 years in order to get a regular source of income for that fixed time. Then the insurer will start paying in accordance with the time horizon as opted for by the individual.<\/span><\/p>\n <\/a><\/p>\n This type of annuity offers regular payment at installments or at once to an individual after a prolonged saving period. Usually when any individual deposits money in any annuity then the insurer deposits the amount in the annuity owner\u2019s name. Then the annuity company offers a fixed interest rate on the fund. When you opt for regular payment then the amount is credited according to the capital.<\/span><\/p>\n Unlike Deferred Annuity which requires a specific period of time to payout, immediate annuity enables a regular guaranteed income almost immediately to the individual. In Immediate Annuity, one individual can opt for a period of any specific period or as long as an individual remains alive. The biggest drawback of the immediate annuity is that if the annuitant dies earlier than the term period, the payment stops and the insurer keeps the principal balance. In other words, once any individual purchases the immediate annuity, it can neither be cancelled nor he can get a refund of the principal amount from the insurer.<\/span><\/p>\n Annuity Certain assures an individual a fixed stream of payments for a specific period regardless of the lifespan of the individual. In the case of death of the individual i.e. annuitant before the term period, the annuity certain continues to make payments to the nominee as per the annuitant\u2019s accord. Any individual will get the regular payment as per monthly, quarterly, half-yearly, or annually basis. Unlike the Immediate Annuity, the annuity certain assures annuitant to pay the residue in the case of annuitant\u2019s death before the term of the annuity to the nominee. For example, any individual i.e. Annuitant buys an annuity for a certain option with a 10-year tenure. But in the case of the certain annuity, the nominee will receive the stream of payment until the completion of the 10-year term in the case of annuitant\u2019s death.<\/span><\/p>\n Like the Annuity certain, you need to choose a fixed period of the term for 5 years, 10 years, 20 years and even 30 years. You can also opt for life with guaranteed term option which enables an annuitant an income stream for life. In this plan, a regular payment is credited to the nominee in case of death of the annuitant within the guaranteed period.<\/span><\/p>\n The scheme \u2018Life Annuity\u2019 enables an individual i.e. annuitant to receive a regular payment until death. In addition to this if any individual has opted for the option \u2018with spouse\u2019 then after the death of the annuitant, the spouse will receive a regular payment till death. Usually, the annuitant needs to pay regular premiums or payments until retirement. Once the policyholder gets retired the insurer kicks start a regular payment to the annuitant until death. Here are the types of \u2018Life Annuity\u2019,<\/span><\/p>\n Fixed Annuity<\/span> \u2013 In the case of the fixed annuity, the annuitant will receive a fixed percentage in respect of the annuity amount.<\/span><\/p>\n Variable Annuity<\/span> \u2013 In the case of the variable annuity, the annuitant will receive an amount in accordance with the performance of the investment\u2019s return received from annuities.<\/span><\/p>\n Joint Annuity<\/span> \u2013 This enables an annuitant to get regular payments until both the spouses die. But if the primary annuitant dies then the amount is reduced in the case of the second person of the spouse.<\/span><\/p>\n Apart from annuity incomes an additional lump sum payment will be forwarded or made in the case of death of the policyholder. On the other hand, Without Cover Pension plan the insurer does not make any lump sum payment on the death of the policyholder.<\/span><\/p>\n Suppose you have opted for a guaranteed period Annuity plan with cover for a period of 10 years. Now you will receive a regular payment in accordance with the sum and the time horizon. But then you die at the 10th<\/sup> year. In addition to this regular payment, your nominee will get a lump sum amount owing to the death of you. In the case of Pension Plan without cover, your nominee will get regular payments till the term period, but not any lump sum payment.<\/span><\/p>\n In 2004, Central Government launched a pension scheme Named National Pension scheme for its employees. The scheme offers a large variety of investment options to employees designed and regulated by Pension Fund Regulatory and Development Authority (PFRDA). From the year 2009, the scheme was made open to any individual Indian Citizen whether Government Employee or Private Employee, resident in India or Non-Resident Indian (NRI) unless the NRI changes its citizenship status, provided the condition that the individual has to be between the ages of 18 &65.<\/span><\/p>\n <\/a><\/p>\n National Pension Scheme primarily offers two types of account namely Tier I Account and Tier II account. Tier I account is mandatory while Tier II account is optional. National Pension scheme provides two ways to invest the money namely Auto Choice or Lifecycle Fund & Active Choice.<\/span><\/p>\n An Active choice is the option to invest in Equities (E), Investments in fixed income instruments (C) other than Government Securities, Investments in alternative investment schemes such as real estate investment trusts, infrastructure investment trusts or alternative investment funds (A) and investment in government securities or bonds (G).<\/span><\/p>\n In contrary to Active choice, An Auto choice provides the option to invest in Equities (E), fixed income instruments (C) other than Government Securities and Government Securities or bonds (G) as per the life cycle fund matrix designed by experts. There are three lifecycle-based funds to choose between An Aggressive Fund, the Conservative Fund, and the Moderate Life Cycle Fund.<\/span><\/p>\nWhat are pension Plans?<\/span><\/strong><\/h2>\n
Types of Pension Plans in India<\/span><\/strong><\/h2>\n
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What is Annuity?<\/span><\/strong><\/h2>\n
Deferred Annuity<\/span><\/strong><\/h3>\n
Immediate Annuity<\/span><\/strong><\/h3>\n
Annuity Certain<\/span><\/strong><\/h3>\n
Guaranteed Period Annuity Plan<\/span><\/strong><\/h3>\n
Life Annuity<\/span><\/strong><\/h3>\n
With Cover and Without Cover Pension Plans<\/span><\/strong><\/h2>\n
National Pension Scheme<\/span><\/strong><\/h3>\n
Active Choice<\/span><\/strong><\/h3>\n
Auto Choice<\/span><\/strong><\/span><\/h3>\n