We all work hard and save money for one of the key stages of life i.e. ‘Retirement’. It is essential to have enough savings after your retirement in order to sustain your lifestyle the way you’ve always been living. Therefore. “Pension Plan” plays a very important role in your financial planning.
Everyone would like to continue living a lifestyle the way you have been living during your working life, which is why Pension Plans are also known as ‘Retirement plans. A certain amount of your current income is transferred and stored for your future by your employer. This amount is then given to the employee as pension funds on his/her retirement.
What are Pension Plans?
Pension Plans are known as retirement plans that require you to make contributions into a pool of funds set aside for your benefit in the future. This pool of funds is invested on your behalf, and the earnings on the investment generate income for your retirement.
For your retirement plan, there are heaps of pension plans available in the market. These plans are different from each other. Their benefits, features, exclusions, etc. are different too. Pension plans are basically an investment or saving tool to provide for your future retirement needs.
All the pension plans are divided into two parts.
The first part is accumulation where you (insured) pay the premium.
The second part is distribution.
Here, you are paid a regular income through an annuity plan after your retirement. An annuity Plan is a type of insurance that starts paying you an income from the start as per the options chosen by you.
The benefit of choosing this investment option i.e. pension plan is that it provides financial security and stability during one’s golden years. Individuals would not have to compromise on their standard of living after retiring from their respective jobs.
Why we need to start retirement planning?
To ensure a worry-free, quality retirement life, one must ensure to plan for retirement well in advance. Retirement planning deals with identifying income sources, estimating the expenses that are going to arise, executing a savings program and managing risk and assets. It must begin long before the individual retires, and the sooner he or she starts, the better.
Financial experts often recommend people to begin retirement planning from the day they start earning. Starting early gives them more time for their wealth to grow. A well-chosen retirement plan can help one rise above inflation. Individuals are advised to make use of a retirement calculator to get an idea about how much they will need to save for the kind of retirement they wish to have.
Types of Pension Plans in India
Following are the types of Pension Plans in India.
- Deferred Annuity
- Immediate Annuity
- Annuity Certain
- With Cover and Without Cover Pension Plans
- Guaranteed Period Annuity
- Life Annuity
- National Pension Scheme(NPS)
- Pension Funds
- Whole Life ULIPs
- Defined Benefit
- Defined Contribution
Riders
Accidental Death Benefit Rider
The policyholder receives an additional sum assured in the event of death in an accident or as a result of one.
Dismemberment Benefit Rider
In the event of an unfortunate incident leading to dismemberment/disability, the insurance policy provider is liable to pay compensation to the policyholder if the rider is availed.
Critical Illness Rider
If the rider is availed, the policyholder is entitled to receive financial assistance if (s)he is diagnosed with any of the pre-specified critical illnesses.
Term rider
Term rider essentially converts a pension plan into a regular life insurance plan in case the insured passes away during the policy period. In the event of the death of the life insured, the nominee receives a death benefit.
Waiver of Premium
This rider waives off future premiums payable in the event of an illness or an accident leading to disability that eventually results in loss of income.
The thing to Consider when you buy the Retirement insurance plan
Here are some key factors you should consider to understand your Life Insurance requirement and make the right decision while buying a Retirement Insurance Policy. Here are some important points to consider
1. Know your current life stage
As you grow older, you will pass through different life stages. Some of these life stages are getting your first job, your marriage, the birth of your child, his or her teenage years, your daughter’s or son’s marriage and your retirement. At these different life stages, you will have different Planning for these goals in advance will help you achieve them.
2. Choosing the right insurance amount: – It is most important to choose the right plan with the best premium amount. Best premium in the sense less premium with more coverage. You should not reduce your premium amount by compromising on coverage. Because, by doing this you may not get total benefit in critical situations and may have to pay a significant amount while treating a disease, hence no benefit of purchasing life insurance.
3. Claim Process: – You must check the claim process before buying a life insurance policy. The simpler the process, the faster you can pass your claim. So, it is better to buy a policy with a simpler claim process.
4. Claim Settlement Ratio:- This is the percentage of the total claims received during the financial year that the life insurance provider has settled.
5. The add-on riders:- Riders such as accidental death benefit, Premium waiver benefit, critical illness, Terminal illness rider, daily hospital cash benefit, Surgical care rider benefits, accidental disability rider and Income benefits are add-ons to your current Core life insurance plan, which help customize the policy according to your specific needs.
6. The type of policy:- There are various types of life insurance policies, each with its own unique advantages. You need to identify your needs and goals and choose the policy type that best meets your requirements for example If you want only insurance then you can choose Term Insurance or if you want insurance and investment then you can go for ULIPs and Endowment insurance
7. The terms and conditions of the policy:- There are other terms and conditions of a life insurance policy that you need to consider as a policyholder.
How Much Should You Invest In a Pension plans
Buying a pension plan is essentially ensuring that there is a financial net for the dependents and for yourself to fall back on in the future. Based on the factors that we discussed above, you should be in a good position to calculate the financial benefit you and your family will need to meet your goals post-retirement.
How To File A Pension Plan Claim?
Insurance companies are continuously striving to make their claims process shorter and easier. If the claimant ensures that all the criteria are met as per company regulations, filing a claim and getting the sum assured should not be a big hassle. Read ahead to find how a nominee can file a claim in India under the following scenarios:
- The policyholder is required to appoint three nominees
- The nominee should approach the PoP* responsible for the NPS account
- The nominee is required to submit important documents**
- The documents are then processed and verified by the PoP
- Verified information is sent to the Central Recordkeeping Agency
At this point, the requests are executed.
What are the eligibility criteria to buy a Pension plan?
The three main eligibility criteria for purchasing retirement/pension plans in India are:
Entry Age: You can purchase a Pension Plan only after you attain a certain age. There are different age brackets for different insurance plans, but generally, the minimum entry age for a Pension Plan is 18 years. However, some companies have set the entry age for these plans as 30 years. In the same way, there is a maximum entry age for the pension fund. In most cases, it is around 70 years.
Premium: There is a minimum premium payment that the policyholder has to pay for taking a Pension Plan. This is because the pension is received according to the premium paid by the policyholder.
Vesting Age: This is the age at which the policyholder starts getting a pension. Generally, it is set at 40 years. It can go up to the limit provided by the insurance provider.
Documents Required To Buy A Pension Plan
AGE PROOF:
- Birth Certificate
- Passport
- Driving License
- Voter ID Card
- High School Certificate
IDENTITY PROOF:
- Aadhaar Card
- Passport
- Driving License
- Voter ID Card
- PAN Card
ADDRESS PROOF:
- Aadhaar Card
- Passport
- Driving License
- Ration Card
- Electricity Bill
- Telephone Bill
INCOME PROOF:
- Bank Statement Slip
- Salary Slip
- Income Tax Return File
MEDICAL REPORTS:
Some insurance providers may ask for medical reports before you can buy a pension plan from them