A Beginner’s Guide to Retirement Pension Plans in India


5 min read

Life seems to be wonderful till the time you have a job and you are drawing a handsome salary. But what about life after retirement? Have you thought about it?

Retirement Planning as a concept is still in its nascent phase in India, with very few actually giving it the due it deserves. A majority of the workforce is so caught up in meeting the needs for the present that the preparation for their future, post retirement takes a back seat. But the fact is that if you wish to be financially independent even after you are retired, you must work on retirement and pension plans from early on. For this, you have to calculate your expenses and needs that you are likely to have during your life as a retired individual. This would motivate you to be prudent about your expenses, increasing your savings for necessary investments as a part of your retirement planning.

You become used to living life in a certain way, especially when you have the means and you can afford the things you want. But the same may not be possible once you retire from your job. This is something that needs consideration. Hence, if you want your retired life to go as smooth as it is going now, you need to make certain pension plans.

Life can become difficult if you have to forgo things that you are used to because of lack of funds. Moreover, after you retire from your job; you actually find time to work on your retirement bucket list; do things that you always wished to do but never had the time. If you plan your finances well you would not only be financially independent to take care of your needs but also live the life that you wished for.  For instance, you can travel or pursue a new hobby.

Hence, planning your retirement is essential. Moreover, with the increasing life expectancy of people these days, pension plans have become all the more significant.

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Factors to take note of while opting for the best Pension Plans

Retirement Planning has become indispensable considering the fact that living costs would continue to increase as will the inflation. Also, the health complications that are plaguing mankind, especially the senior citizens need advanced healthcare facilities; which do not come cheap.

Therefore below are certain suggestions that would help you in choosing the best pension plans for retirement saving.

What are the types of pension plans in India?

Your return on investment rate should be higher than the inflation rate –

Retirement Planning is a long-term goal, which many people might find difficult to continue, especially with the changing rates of inflation. There may be a time when inflation can unconstructively impact your capital and assets held for a long term.  Thus, having a higher return on investment as compared to the inflation rate is always necessary.

Choose a Pension Plan that suits you accurately

While planning for your retirement, you must keep in mind the needs and aspirations of your family as well. You can’t miss out on the fact that you might have to provide for your family even after you are retired.  Also, you might like to calculate the financial security of your family when you are gone forever. Thus, you may like to have enough funds/retirement savings that can make your family’s living comfortable even after you are not there. Also, tax deductions should be taken into consideration while planning for retirement savings.

Go for plans with low risk but regular and consistent returns

It is necessary to take risks if you want to expand your wealth. But if you are already late in planning for your pension and on the verge of retirement, you must choose plans with lower risks and greater returns. Thus, it is best to stick to a low-risk amount or plans offering guaranteed return so that you can avoid market volatility.

Vesting Period

While opting for a retirement plan, it is important to ensure that you buy a policy that allows a vesting period matching your needs.  There are several pension schemes available in India. Some of these schemes may allow you to buy plans to stay secure financially at a young age, while you can also buy security at a time when you are nearing your retirement age. People can choose from a range of pension plans after reaching their 40s or even in their 60s in case of late retirement preparations.

Buy a plan that allows appropriate annuity options

This is another important aspect to keep in mind while choosing the best retirement pension plans. So, always go for plans offering the best annuity of your choice. There are some long-term pension plans which allow guaranteed annuity for a certain number of years irrespective of whether the insured is alive or dead.  Conversely, there are plans that offer annuities to the nominee of the insured following his/her death.

Consider costs

It is equally important to constantly keep looking for options for better and low cost pension plans in India with high returns. Thus, understanding various savings plans thoroughly and examining their varied features is important before making a selection to suit your requirements best.

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To Conclude

Retirement pension plans are bought to ensure a secured living when your monthly pay drops down or stops coming.  With pension plans, you can have a lump sum amount in hand at the time of your retirement. Further, you might also have a monthly annuity coming your way to make your living comfortable. However, having a clear understanding of the difference between pension plan and retirement plan may help you to invest better.

But you also need to decide on the time when you want to start planning for your retirement – in your young age or when you are in your middle age. Starting young allows you to take risks and plan better. But there are good options available even if you are planning your retirement late.

All you need is to make an informed decision for your retirement, the money that you need to save, and start investing. A pension plan calculator may be a good tool to guide you to estimate the money that you would need after retirement.

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FAQs on Retirement Pension Plans

What is a retirement pension plan?

A retirement pension plan is a financial arrangement that provides an individual with a stable income during their retirement years. It is generally paid by the employee and their company, with payments made throughout the course of the employee's employment. Pension plans can be defined benefit or defined contribution, with the benefit amount decided by criteria such as years of service and pay.

Who is eligible for a retirement pension plan?

Eligibility for a retirement pension plan varies depending on the employer and the kind of plan. Some firms provide pension plans to all employees, while others may only provide them to select categories of employees, such as management or unionised workers. Certain plans may have a minimum length of service requirement before an employee may participate. Moreover, some plans may provide early retirement with lower payouts, whilst others may require employees to reach a particular age before collecting benefits.

How much should I contribute to a retirement pension plan?

The amount that an individual should contribute to a retirement pension plan is determined by several criteria, including their age, income, and retirement objectives. Individuals are typically advised to contribute as much as possible, up to the maximum allowed by the plan and their specific financial condition. This might assist them ensure that they have adequate resources to maintain their retirement lifestyle and that any workplace matching contributions are maximised.

What happens to my retirement pension plan if I leave my employer?

Once you quit your job, you may have numerous alternatives for your retirement pension plan. You may be able to leave the money in the plan and continue to receive benefits when you reach retirement age, move the funds to a new employer's retirement plan, or roll the funds over into an individual retirement account, depending on the plan (IRA). Before making a selection, it is critical to thoroughly analyse the options as well as any related costs or tax ramifications.

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Aug 05, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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