Understanding the Different Types of Retirement Plans: A Complete Guide

Retirement plans are investment strategies that help individuals post-retirement to build their pension fund. These plans are low risk, with a regular flow & a pre-fixed amount of income that would be received post-retirement. There are many different pension plans available in India depending on the varied factors, such as retirement requirements, financial goals, risk tolerance, & personal preferences. Retirement plans help provide financial support during your post-retirement period, enabling you to meet your post-retirement goals. In this article, we will discuss different retirement plans available in India. 

Different Types of Retirement Plans in India

Provided below are the different types of Retirement Plans available in India:

1.Deferred Annuity Plan

• Under this plan, one can accumulate the corpus funds with the help of single or regular premium payments. 
• Here, you will start receiving a pension once the policy tenure is over.
• Under this plan, one-third of the funds are exempt when they are withdrawn, & the remaining two-thirds are taxable.
• Hence, the amount invested cannot be withdrawn even in case of emergencies as it gets frozen.
• It is best suited for investors who want to make regular or in a lump sum.

2. Immediate Annuity

• This plan allows the immediate disbursal of pension upon the payment of the lump sum amount.
• It provides a wide range of annuity plan options to choose from.
• The premium amount paid is exempt from tax under the provisions of the Income Tax Act of 1961.
• In case the policyholder dies during the policy tenure, the nominee will receive the money.

3. Annuity Certain

• Under this plan, an annuitant will receive the amount of annuity payments for some specified number of years.
• Also, the annuitant will choose the period of payment.
• The annuity amount would be received by the nominees in case the annuitant dies before the complete payments were received.

4. Guaranteed Period Annuity

Under this plan, the annuity amount is paid at a specified period of time, i.e. 5, 10, 15, or 20 years, irrespective of whether the insured survives or not.

5. Life Annuity

• Under this plan, the pension amount is payable to the annuitant till he is alive.
• In case the option “with the spouse” was chosen at the time of choosing the life annuity plan, the pension amount will be transferred to the spouse if the policyholder dies.

6. National Pension Scheme

• The government of India introduced this plan to secure the financial future of the policyholder post-retirement.
• Here, the return on investment is generated by investing the funds in NPS.
• Under this plan, 60% of the funds can be withdrawn at the time of retirement, & the remaining 40% can be utilised to purchase the annuity.
• The proceeds from the NPS are taxable.
• Also, the NPS calculator can be used to calculate the estimated return amount from the scheme.                                                                                                                                                                                                                                                                                                                                                                                         7. Pension Funds                                                                                                                                                   
• The government of India regulates long-term pension funds under the Pension Fund Regulatory & Development Authority (PFRDA).
• This plan yields better results on maturity than other plans.
• They remain active for a specified tenure & allow policyholders to withdraw the amount to meet the financial crunch during emergency situations.
• You can also use a Retirement Calculator to calculate how much should be saved every month in order to receive a large sum post-retirement.                                                                                                                                                                                                                                                                                                             
• 8. Whole Life ULIPs   
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  • Under this plan, the funds are invested for the whole life of the insured.
  • They allow partial withdrawals at the time of retirement, hence offering income exempt from tax.
  • Subsequent additional withdrawals can also be made as & when required.

                                                                                                                                                                                                                                                                                                                                                                      9. Defined Benefit
  

  • Under this plan, you get a guaranteed source of income throughout your life.
  • Here, the calculations depend upon the earnings & number of years served by the employer.

  
  10. Defined Contribution
  

  • Under this plan, both the employer & employees contribute towards the fund.
  • Retirement savings depend on the amount of contributions & returns on investments.

                                                                                                                                                                                    11. Public Provident Fund                                                                                                                                                                               
  

  • It is a long-term investment type with a tenure of 15 years.
  • PPF provide huge returns at the end of the tenure due to its large compounding.
  • One has to invest a maximum of INR 150000, either upfront or in instalments, during a financial year.
  • The amount invested in PPF is eligible to get a tax deduction under section 80C of the Income Tax Act, 1961.
  • The interest rate of PPF is set by the government of India each financial quarter, depending upon the profits from government securities.

   

  Difference between Pension & Annuity Plans

  Provided below are the differences between the Pension & Annuity Plans:

  Basis of Difference	Pension Plans	Annuity Plans
  Contributor	The employer may make the contributions under pension plans. Individuals can also make pension plans on their own.	Here, an individual has to plan the annuity plan.
  Investment Control	Limited control over how the contributions are invested.	It provides control over how the contributions are invested as the insurance company manages these plans.
  Income Guarantee	It provides some level of income guarantee & security as the actual income will depend on multiple factors like investment performance, contributions, & market fluctuations.	It provides a guaranteed level of income security irrespective of economic factors or market fluctuations.
  Payout Flexibility	It may offer a fixed monthly pension, lump sum withdrawal or both based on the terms & conditions.	These can be variable, fixed, or indexed, which will allow you to choose the income type that best suits you.
  Inheritance	It may also provide survivor benefits, i.e. the spouse or the beneficiaries will inherit a part of the pension.	It may not provide inheritance benefits.

  Conclusion 

  A Retirement plan helps earn the defined benefits at the time of retirement, i.e. it offers a fixed amount of benefit to an employee once he retires. Different insurance companies, banks & financial institutions provide retirement plans with varied features. However, employers guarantee their employees some specific retirement benefits depending on their salary & tenure through defined benefits.