life insurance company
Retirement Plans

Pension Plans

The pension plan is also called a retirement plan in which you can invest some amount of money during your employment days regularly so that you can have a normal salary after your retirement. A pension plan helps you to combat the inflation and the uncertainties of the future and offers you and your family a financially healthy life in your post-retirement period.

For a pension plan, the insured person has to spend a specific amount of money on a regular basis until retirement time that creates a financial cushion on a long-term basis. That stockpile money is given back to the policyholder by the insurer as pension or annuity at regular intervals of time.

Types of Pension Plans in India

To address the different needs of the individuals, the insurance companies in India have come up with a wide array of pension plans with multiple classifications, varied benefits, and plan structures. Pension plans further can be divided into 8 types and those are mentioned below.

Deferred Annuity

If you opt for a deferred annuity pension scheme, you can pile up a corpus by paying regular premiums or a single premium according to your convenience over a policy tenure. Apart from different benefits, it also offers the Tax Exemption benefit, where 1/3rd of the total amount is tax-free at the time of withdrawal. Once you have invested in a deferred plan, the amount gets locked and cannot be withdrawn in any kind of emergency situation.

Immediate Annuity

If you avail of the immediate annuity scheme, you need to pay a lump sum amount and you can get the pension amount instantly that is subject to the lump sum amount paid by you. This plan also comes with the benefit of Tax Exemption as per the Income Tax Act, 1961. In case of the unfortunate demise of the insured person, the nominee or the beneficiary is entitled to receive the pension amount.

Annuity Certain

This pension scheme promises to pay the annuity to the policyholder for a specific period of time and the insured person is free to choose that period according to his/her convenience. In case of the unfortunate demise of the insured before receiving the entire amount, the beneficiary or the nominee is to get the rest of the amount.

Life Annuity:

If you go for the life annuity scheme, you are entitled to get the pension amount until your death. However, if you choose the ‘With Spouse’ option, then after your demise your spouse can avail of the facilities of the plan.

Guaranteed Period Annuity

This type of pension scheme offers the insured person the annuity amount for a certain period of time such as 5 years, 10 years, 15 year or so on. In this case, it does not matter whether the policyholder survives that period or not.

With Cover and Without Cover Pension Plan

With cover pension schemes come with the life cover facilities but the coverage amount is not very high as a large part of the premiums is paid for the growing corpus rather than covering the life risks. Under this plan, the beneficiary can get the lump sum amount in case of the unfortunate demise of the insured.

Whole Life ULIPs

Once you have opted for this type of pension scheme, the amount of money remains invested for the entire life of the policyholder. After his/her retirement, one can withdraw a partial amount, which comes under the tax exemption facility. However, the insured person can withdraw a certain amount whenever he/she needed.

National Pension Scheme

This is a pension scheme introduced by the Government of India in order to provide financial security to individuals after their retirement. According to the convenience of the individual, the invested money is put in equity and debt funds to generate returns on investment. The insured person can withdraw 60% of the amount at the time of the retirement whereas the rest of the amount (40%) is used to purchase the annuity.

Defined Benefit

Under this plan, you need to pay a certain amount from the retirement income for life. The pension amount is made on the basis of your earnings and also the number of years the insured has served as an employee under the employer. In this scenario, your employer also becomes eligible to contribute. If there is a lack of money that is required, the employer has to pay the amount.

Defined Contribution

Under this plan, the income of retirement is not guaranteed whereas the contributions are guaranteed. Both you and your employer can contribute to this plan easily. You are responsible and answerable for all the contributions and commitments that are used to raise your investment funds. The amount of money that you want to utilize after your retirement depends on the all-out contributions made to your record and the investment returns this cash earned. You can use this cash as a reference to generate your retirement salary.

Pension Funds

The Pension Fund Regulatory and Development Authority (PFRDA) has permitted 6 companies as fund managers to manage pension funds in India. This type of pension scheme offers comparatively a better return at the time of maturity. Some insurance companies offer the facility to pull back the annuity amount at the time of the aggregation stage to the policyholders. This helps you to manage any financial crisis without relying on the banks for a loan.

What Are The Key Benefits of Pension Plans?

As in the case of pension plans, you are investing for a longer period of time regularly during your employment days, at first, you need to know whether your investments are worthy or whether they will pay you back or not. For that, you need to be well aware of the benefits and advantages of pension plans. And here are some of the important mentions.

  • Annuity for the Future: No matter what scheme of pension plans you have chosen; the retirement plan is savings for the long-term that focuses on creating an annuity that can offer you a regular flow of sum in your post-retirement period.

  • Financial Cushion for the Future: The pension plans act as a safeguard for the post-retirement time by offering a certain amount of money to the insured on a regular basis to meet the daily needs of that person. While investing in a pension plan, keep in mind your present income and the probable future inflation. As these pension plans provide better returns and secure your and your family’s future, you should start investing to avail of a protected and hassle-free post-retirement life.

  • Beneficiary: Most of the insurance companies come with the insurance cover that offers the amount of money to the nominee or the beneficiary in case of the unfortunate demise of the insured person. In this way, a pension plan keeps on protecting the family even if the insured person is not there.

  • Wide Number of Plans: In India, there are different types of pension plans available to cater to the varied needs of individuals, and the types have been discussed previously. You are offered multiple options to choose from according to your requirements and that makes the pension plans more convenient and easier to avail of.

  • Add-on Cover: Many insurance companies offer the facility of add-on rider to extend the coverage of your pension plan for keeping you more protected. Some important mentions of the riders are critical illness rider, disability, due to an accident rider, and some more.

  • No Risks Attached: In India, pension plans are completely risk-free for any kind of investment. If the employer is offering you the plan, your company goes bankrupt, and even if the share market falls, there will be no negative effect on your pension scheme and its benefits, since the Pension Benefit Guaranty Corporation, a government body, handles the pension funds and payouts.

  • At Your Most Needed Time: As your retirement age comes with lots of responsibilities and liabilities, you need a handsome amount of money at that time. Some of the retirement plans offer the facility of lump sum payment that can help you to pay for the major expenses. Fewer retirement plans offer you to withdraw a large amount of money from your corpus to ease out the financial crisis. So, choose a retirement plan wisely that suits you the most according to your convenience.

  • Tax Exemptions: Most of the pension plans come with the facility of tax exemption. If you plan it well and select the right scheme you can easily avail of the tax benefits under Section 80D of the Income Tax Act.

Top 10 Pension Plans in India in 2021

As the market is bust with a bundle of pension plans, it becomes difficult for the policy-seeker to find an ideal one for him/her. To lighten your burden here is a table listed with the best pension plans of 2021 in India. The table is made on the basis of the parameter of Vesting Age, which is an important factor while choosing the most suited pension plan. Have a look at the table below.

Plan NameCompany NameType of PlanEntry ageVesting ageBasic Purchase ValuePolicy term
Max Life Guaranteed Lifetime Income PlanMax Life InsuranceImmediate and Deferred Annuity

Immediate – 0 years to 80 years

Deferred – 30 years to 80 years

Minimum – 31 years

Maximum – 90 years

NANA
ICICI Pru Easy RetirementICICI PrudentialUnit-linked

Minimum – 18 years

Maximum – 70 years

Minimum – 30 years

Maximum – 80 years

NA10 – 30 years
LIC’s New Jeevan ShantiLICNon-linked, Deferred annuity

Minimum – 30 years

Maximum – 79 years

Minimum – 31 years

Maximum – 80 years

Minimum – Rs. 1,50,000

Maximum – No upper limit

NA
SBI Life Saral Retirement SaverSBI Life InsuranceTraditional Savings

Minimum – 18 years

Maximum – RP: 60 years

SP: 65 Years

Minimum – 40 years

Maximum – 70 years

Minimum – Rs. 1,00,000

Maximum – No upper limit

Minimum: RP – 10 years

SP – 5 years

Maximum – 40 years

HDFC Life Click to RetireHDFC LifeMarket-linked

Minimum – 18 years

Maximum – 65 years

Minimum – 45 years

Maximum – 75 years

NA10 to 35 years
Kotak Premier Pension PlanKotak LifeTraditional Savings

Minimum – 30 years

Maximum – 60 years

Minimum – 45 years

Maximum – 70 years

Minimum – Rs. 2,00,000

Maximum – Subject to underwriting

10 to 30 years
Exide Life Golden Years Retirement PlanExide Life InsuranceGuaranteed for life

Minimum – 18 years

Maximum – 65 years

Minimum – 55 years

Maximum – 75 years

Minimum – Rs. 2,40,00010 years to 42 years
Tata AIA Life Insurance Guaranteed Monthly Income PlanTATA AIA Life InsuranceNon-linked, non-participating individual life insurance savings plan

Minimum – 6 years

Maximum – 60 years

Minimum – 65 years

Maximum – 68 years

NA5, 8, 12 years
Aditya Birla Sunlife Empower Pension PlanAditya Birla CapitalMarket-linked25 years to 70 years80 years

Minimum – Rs. 1,00,000

Maximum – No upper limit

5 to 20 years
Bajaj Allianz LongLife GoalBajaj AllianzUnit-linked non-participating whole life insurance plan

Minimum – 18 years

Maximum – 65 years

99 yearsDepends on the variables99 minus entry age of the insured person

Max Life Guaranteed Lifetime Income Plan

It is a non-linked, non-participating individual general savings annuity plan that comes with both the Immediate and Deferred Annuity variants enabling the policyholder to build a corpus amount for the post-retirement period in order to generate a regular remuneration. Under the deferred annuity variant, you can have the choice to plan early for your retirement and lock a higher annuity rate for a risk-free and hassle-free life-long payment.

Key highlights of the plan:

  • A fixed guaranteed amount will be paid at the policy inception to the insured person until his/her death.

  • If you select the joint-life annuity option, then even after the demise of the insured, the nominee or the beneficiary is entitled to receive the amount of money regularly.

  • With the top-up facility, the amount of annuity can be increased.

  • This plan comes with a death benefit but does not offer any maturity benefit.

ICICI Pru Easy Retirement Pension Plan

This retirement plan is eligible to provide you comparatively better returns and you can also develop your money by investing in a mix of equity and debt funds. In this way, you can combat the fi=future inflation and safeguard your future as well as your investments.

Key highlights of the plan:

  • This plan offers you to choose from multiple options to receive your money such as Regular Income Option, Lump sum + Regular Income, Postpone your retirement date, and Single Premium Deferred Pension Product.

  • Apart from the higher returns, this plan also offers protection to your money by providing a capital guarantee on the money that you invest in this plan.

  • In case of the unfortunate demise of the insured person, the nominee is entitled to get the Guaranteed Death Benefit or the Fund Value, whichever is higher.

  • This plan comes under the tax exemption benefit under Section 80CCC, 10 (10A), of the Income Tax Act, 1961.

LIC’s New Jeevan Shanti

This is a single premium plan that comes with the options of Single Life and Deferred Life Annuity to choose from and thus secures the post-retirement life of the insured and the nominee. This plan is available both online and offline.

Key highlights of the plan:

  • The insured person can avail of the add-on cover to protect the dependent people with disabilities.

  • Different types of death benefit options are available under this plan, such as Lump sum death benefit, Annuitization death benefit, and In Installment.

  • The policy can be surrendered at any time during the policy period and also the policy loan is available after 3 months from the completion of the policy.

  • By investing on a long-term basis under this plan you can have a relaxed retirement life.

SBI Life Saral Retirement Saver

If you want to build a retirement corpus to secure your post-retirement life, this plan is ideal for you. Apart from that, this plan also comes with different other benefits and add-on covers.

Key highlights of the plan

  • This plan offers you simple regular reversionary bonuses.

  • This plan also comes up with an optional rider, SBI-Life Preferred Term Rider that provides Life Cover.

  • Under this policy, you are eligible to avail of the Income Tax Benefit that is subject to the terms and conditions of the company.

  • This plan offers maturity/vesting benefits and also death benefits.

HDFC Life Click to Retire

If you want to secure your retirement age with assured vesting benefits and also want to gain from upside in the market, this plan is best suited for you. Additionally, you can also customize the benefits under this plan according to your convenience.

Key highlights of the plan:

  • Under this policy, no premium allocation charges, no policy administration charges, and no exit charges are applicable.

  • This plan offers you to start your retirement plan at as low as Rs. 2000 per month.

  • The insured person can delay or postpone the vesting date before annualization. Any number of times is subject to the maximum vesting age of 75 years.

  • In case of the unfortunate demise of the insured person with the policy period, the nominee will get the fund value or the 105% of the total premiums paid for the plan to date, whichever is higher.

Kotak Premier Pension Plan

This is a participating plan that comes with assured death and vesting benefits. This plan helps you to build up a corpus for your retirement period to generate a regular remuneration in the golden years of life.

Key highlights of the plan:

  • Guaranteed additions as a percentage of basic sum assured will be vest at the end of each financial year, in the first 5 years. This amount will be payable as vesting or death benefit whichever will be earlier.

  • From the 6th policy year onwards, the insured person can avail of the different bonuses.

  • This plan offers you two add-on rider benefits to choose from namely Kotak Accidental Death Benefit Rider and Kotak Permanent Disability Benefit Rider.

  • Under this plan, one can avail of the minimum guaranteed vesting or death benefit that is equal to 105% of the total premiums paid to the plan till the date of death or vesting.

Exide Life Golden Years Retirement Plan

This is a flexible pension plan that offers you different options to choose from for premium payment terms and top-ups. This plan comes with a capital guarantee with attractive returns.

Key highlights of the plan:

  • All the premiums that are paid to the plan, including the top-up premiums are guaranteed to develop at a rate of a minimum of 1% compounded per annum.

  • Death benefits and loyalty benefits are available under this plan.

  • One-third of the retirement fund falls under the category of tax exemption and the remaining 2/3rd balance can be used for the life-long pension.

  • One can withdraw the entire guaranteed death benefit at his/her convenience.

Tata AIA Guaranteed Monthly Income Plan

As the name suggests, under this plan the insured person not only can take care of his/her family during the post-retirement period but also can generate a regular flow of income in the golden years of life. This is a flexible plan with guaranteed returns.

Key highlights of the plan:

  • This pension plan of Tata AIA offers you life insurance coverage to secure and protect the future of your dearer ones.

  • This plan provides monthly income at the rate of 8.35% to 13.3% of the total premiums paid till the date per annum.

  • One can choose from the options of additional riders to enhance the protection.

  • This plan offers you to pay the premiums in any of the following ways – annually, half-yearly, quarterly and monthly.

Aditya Birla Empower Pension Plan

You can easily build up a corpus for your hassle-free retirement life by investing in this plan as this plan is very seamless and comes with both Assured and Self-Managed options.

Key highlights of the policy:

  • Under this plan, the Fund Value is equal to the number of units pertaining to the premiums allocated to the segregated fund/s chosen by the insurer, multiplied by its then prevailing unit price. Guaranteed additions in the form of units will be added to your policy.

  • This plan comes with vesting benefits and that will differ according to the plan chosen by you.

  • In case of the unfortunate demise of the insured person, the nominee will get the guaranteed death benefit or the policy fund value, whichever is higher.

  • This plan also offers the surrender benefit but that will be according to the policy discontinuance provisions mentioned in the policy document.

Bajaj Allianz LongLife Goal

This plan provides financial security as Retire Life Income (RLI). This is a ULIP (Unit Linked Insurance Plan) that invests your money in an investment portfolio selected by you only and provides the market-linked returns over the long term to offer you a healthy and tension-free retirement life.

Key highlights of the policy:

  • This plan comes with a unique benefit option that enables you to receive a regular income after the age of 55 years or after the 10th policy year, whichever is later, till the age of 99 years but it is subject to the terms and conditions of the company.

  • You can avail of different options to reduce the premium amount.

  • This plan falls under the category of tax exemption under Section 80C and 10 (10D) of the Income Tax Act.

  • This plan not only offers you the retirement life income but also has come up with the whole of Life Insurance cover.

How Do Pension Plans Operate?

In India, the pension plan works in a fragmented and complicated way. The individuals have multiple pension scheme options to choose from. Pension plans are structured in two ways to function, namely accumulation and distribution.

The premiums paid for a pension plan are invested in a fund or asset chosen by you for a certain period of time. And after maturity, one can avail of the pension benefits that are known as vesting. At the time of vesting, you can either opt for receiving the pension benefits or can purchase an immediate annuity plan from the same company. Here are some important features of pension plans in India.

  • Guaranteed Maturity Benefit: All the pension plans in India provide this benefit that is generally the fund value or the 101% of the premiums paid by the insurer, whichever is higher.

  • Guaranteed Death Benefit: Most pension plans come with the death benefit if the premiums are paid regularly without any break. In case of the unfortunate demise of the policyholder during the policy period, the nominee or the beneficiary is entitled to avail of this benefit, which is equal to 105% of the total premiums paid towards the plan, including the top-up premiums, if any.

  • Nominee/ Beneficiary: The nominee or the beneficiary can use the pension funds in the following three ways.

    1. He/she can withdraw the entire death benefit.

    2. He/she can buy an immediate annuity plan from the same company with the entire proceeds.

    3. He/she can partially withdraw some amount and the rest can be used for buying an annuity plan.

  • Surrender: According to the new pension policy of India, the insured person can surrender or discontinue his/her pension plan whenever he/she wants. In this case, a certain amount of money will be deducted from the fund value. But the discontinued fund will keep on earning at a rate of 4% per annum. That value can be withdrawn after 5 years. However, if you surrender a retirement plan within 5 years of the purchase, the proceeds have to be used to buy an annuity plan, either immediate or deferred.

What All Factors Should You Consider Before Buying a Pension Plan?

Pension plans and their premiums can be affected by many factors. Here are the mentions of a few important ones.

  • Inflation: Expenses to maintain a healthy lifestyle grows according to the inflation rate. So, when you are planning to buy a pension scheme, keep in your mind the inflation rate and plan accordingly to avail of a secure and protected retirement life.

  • Medical costs: Usually in old age people suffer from different ailments and according to that, the medical expenses rise. In this respect to combat, the future sky-rocketing medical costs choose a pension plan that can provide you with a sufficient amount of remuneration.

  • Lifestyle costs: After retirement to continue the flow of habitual lifestyle, you need to count on the monthly expenses. Additionally, you also need to prepare yourself to combat any financial emergencies. So, while planning for a pension plan, keep this factor in mind so that you v=can build up a corpus that can offer you an adequate amount of money in your golden days.

  • Financial needs: Understanding your financial needs is very important as you may have different responsibilities in your post-retirement period. Only after assessing your financial needs, select a convenient retirement plan to safeguard yourself and your family.

  • Life expectancy: Nobody can predict how many days he/she will live. Therefore, plan your retirement scheme according to that so that even after your demise, your family would not suffer any financial crisis.

  • Understand the pension plan wisely: As pension plans function in a complex way and there are more than 10 types of pension plans, it is your primary duty to understand them well. Read the policy document carefully; know about the benefits and exclusions and then go for any one of your choices. You can also take the help of an expert’s opinion.

  • Assets, liabilities, and loans: If you have any current active loans and liabilities pay them off on a regular basis. Otherwise, they will claim a handsome amount of money from your annuity.

  • Compare and research: The market is flooded with different pension plans offered by various insurance companies. After understanding your needs, compare different plans, search the market, do some research on the plans and then only select one that is best suited for you.

  • Start doing retirement planning: Without anyone’s influence, you yourself need to evaluate your present and probable future financial condition. In this scenario, consider your provident fund, insurance plans, premiums, and other savings. After assessing everything, then only invest in a desirable pension scheme.

Why is Retirement Planning Important?

The corpus created by a retirement plan not only safeguards you and your family in the post-retirement period but also comes with many other benefits that act as a cushion in your golden days. The earlier you start your retirement planning, the more money you can gather to build a corpus for a tension-free and financially secure retirement life. Here are a few mentions of the importance of such a plan.

  • Regular income: Usually, as after retirement the general flow of money stops, it gives financial headaches to the individuals. But, with a retirement plan, you can easily generate a regular monthly income that can bear the monthly and other expenses of you and your family.

  • Live Life in a full swing: The pension plan is designed to provide you with a tension-free, stressless and seamless life financially, mentally, and physically as well.

  • No Financial Constraint: The corpus you have been saving for a long time, that will help you to handle any type of financial situation. That enables you to combat the financial crisis and also to look after your family.

  • Safeguard Your Family: The pension plan looks after your family even after the unfortunate demise of yours within the policy period. Your family won’t have to suffer financially in your absence as the beneficiary or the nominee will get the amount of money.

  • Healthy Life: The retirement plan helps you to maintain a healthy habitual lifestyle even after your retirement. Also, you can fulfill your unfulfilled desires with that money.

How Can You Buy a Pension Plan?

Most insurance companies offer both online and offline methods to buy a pension plan. For the online process, you need to go to the official website of the chosen company. Under the category of the pension plan, select the desired scheme and find the ‘Buy Now’ option. Then provide the necessary details and make the payment for that plan. Upon successful payment, the policy details will be sent to your registered email ID.

If you want to avail of the offline process, visit the nearest branch of the selected company. Their experts will guide you through the buying process. You can also call on the contact number of the company to know more about the buying process. Apart from these, you can also take the help of a registered licensed agent of the company to buy a pension plan.

Annuity Settlement Process of Pension Plans

The annuity settlement process may differ from one insurer to another. Usually, after your retirement after a certain period of time according to your chosen policy, you can generate a regular monthly remuneration from the corpus that has been developed for a long period of time. Again, some insurance companies provide a lump sum amount, you can also go for that.

In case of the demise of the insured person, the beneficiary or the nominee will get the sum. In that case, you need to produce the following required documents.

  • Death certificate of the insured person.

  • Policy documents.

  • Bank particulars of the beneficiary.

  • Advanced receipt duly signed by the beneficiary.

  • Any other document demanded by the insurer.

Frequently Asked Questions

1. What is the difference between Participating and Non-participating plans?

Here are the differences.

Participating policyNon-participating Policy
It allows the policyholders to share the profits that the company earns.It does not share any profits in the form of dividends.
This is a flexible plan.  In a market-linked policy, you can switch and redirect funds.This plan is comparatively rigid.
In this policy, the bonuses in the future depend on the market and the financial condition of the company.This plan remains unaffected by the fluctuations of the market. Both the premium and maturity amounts are secured under the policy.
Apart from the guaranteed benefits, a participating policy offers many other benefits such as cash dividends and bonuses.This plan only offers guaranteed benefits.

2. What is the best time to invest in a pension plan?

The earlier you invest in a pension plan, the higher returns you are entitled to get from your chosen policy. So, it is wise to plan for a pension plan as soon as you are into a job and get your first salary. You may start with a small amount of investment and later you can invest more as your salary increases.

3. What are the eligibility criteria to purchase a pension plan in India?

The three most important criteria are as follows:

  • Age of Entry: Every insurance company has set a certain entry age for purchasing a pension plan. Usually, that is 18 years but that varies from one insurer to another. Similarly, there is also a maximum entry age for pension plans.

  • Premium Amount: Depending on the premium amounts paid to the selected policy over the period of time the returns are calculated, a minimum premium amount has to be paid while purchasing the policy.

  • Vesting Age: It is the age from when the insured person starts getting the pension and other benefits of his/her pension policy. Like the entry age, vesting age also may vary from insurer to insurer but usually, the minimum vesting age starts after the age of 40.

4. What is the PM Pension Plan?

The Pradhan Mantri Pension Yojana is a kind of pension scheme that is specially designed for rural people to provide them with better and secure retirement life. One who is in between the age group of 18 to 40 years can buy this plan and can choose to pay the premiums either through half-yearly, quarterly, or monthly payment options.

5. What does it mean by the accumulation period?

The accumulation period denotes the time period during which you have to pay premiums regularly for your selected pension plan to build up a corpus in order to avail of the benefits of the plan.

6. Even if I have a provident fund, do I need to still invest in a pension plan?

Yes, you need it. The lone provident fund cannot combat inflation and your future expenses. As you grow old, medical expenses and other liabilities and responsibilities grow along with that. In that case, the provident fund cannot support you alone. A pension plan acts as a cushion at that time to provide you a financially healthy life after retirement.

7. I am an NRI. Can I buy a pension plan in India?

Yes, you can. There are multiple insurance companies in India that offer a pension plan to NRIs. These plans come with certain terms and conditions and they function in a slightly different way from the other pension plans.

8. Can the employees of the unorganized sectors invest in the National Pension System?

Previously, employees from the unorganized sectors could not invest in NPS but Central Government launched a co-contributory pension scheme, ‘Swavalamban Scheme’ in the Union Budget of 2010-11 in which they can also contribute on a voluntary basis.

9. Can I buy 2 pension policies?

Yes, you can buy more than one pension policy from different insurers.

10. What is the final salary pension?

The final salary pension is the set level of pension amount that is offered at the time of retirement on the basis of the insured person’s savings and the earning at the time of retirement.

Life Insurers