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Pension plans

Pension plans are annuity plans which are designed to create a steady flow of income after retirement. Annuities are a series of regular incomes which are paid throughout the lifetime of an individual. Pension plans help policyholders to build up a retirement corpus from which annuity payments are made. Pension plans are different from other life insurance plans as they pay the maturity proceeds in the form of annuities and not in a lump sum.

Types of pension plans in India

There are two types of pension plans available in India. They are as follows:

• Deferred annuity plansUnder deferred pension plans, the payment of the annuity is deferred up to a certain period. In these plans, the policyholder firsts build up a corpus by paying premiums. The term of the plan is called the deferment period as the annuity is not paid during that period. After the term of the plan is over, the deferment period is over. Thereafter, the policyholder receives annuity pay-outs for his whole life.
• Immediate annuity plansUnder immediate annuity plans, annuity pay-outs start immediately after a lump sum corpus is paid to the insurance company. Under these plans, the policyholder pays a single premium to the company. Thereafter, the company pays annuity pay-outs immediately from the next month, quarter, half-year or year as chosen by the policyholder.

Features of pension plans

The important features of pension plans include the following:

• There is no death benefit when annuity pay-outs start. Under deferred annuity plans, when the premiums are being paid, the plan has a death benefit. But under immediate annuity plans, where the annuity pay-outs start immediately, no benefit is, usually, paid on death. The annuity pay-outs stop when the policyholder dies. In some cases, the single premium paid at the time of buying the immediate annuity plan is returned.
• Deferred pension plans come in traditional as well as unit-linked variants.
• The date on which the annuity pay-outs start and the policy matures is called the vesting date.
• In the case of immediate annuity plans, there are multiple annuity payment options. The policyholder can choose to include the spouse as the second annuitant in which case annuity is paid till either of them is alive. Similarly, the annuity pay-outs can be chosen to increase every year. There is an option to receive the purchase price back if the annuitant dies, etc.
• When the deferred annuity plan matures, the policyholder has three options.
  • 1/3rd of the maturity benefit can be withdrawn in cash. This benefit is tax-free and the withdrawal is called commutation of pension. The remaining 2/3rd of the corpus is compulsorily paid an annuity.
  • The vesting date can be postponed by the policyholder.
  • The policyholder can buy a single premium deferred annuity plan using the proceeds of the plan.
• The annuities which are paid under the plan are taxable. Only the commuted part of the pension is tax-free under Section 10 (10A). Moreover, the premiums paid for the plan qualify for tax deduction under Section 80CCC.

How to choose the best pension plans

To choose the best pension plans, individuals should look out for the following parameters:

• The plan should have a long tenure so that vesting occurs when the policyholder is quite old and approaching retirement. Vesting of the plan when the policyholder is still earning does not make sense as the annuity pay-outs would not be required at that time.
• Selecting a unit-linked pension plan is better as the corpus grows at a good rate.
• If it is an immediate annuity plan, there should be various options of availing annuity pay-outs.
• The plan should have optional riders for a more comprehensive scope of protection.

Buy pension plans through Turtlemint

Turtlemint is an online platform wherein you can compare and then buy the most suitable pension plan available in the market. Turtlemint is tied up with leading life insurance providers ensuring that you get to buy the best plan. Moreover, Turtlemint’s team provides personalised assistance both during the purchase of a plan and also at the time of sale. If you face any technical queries, you can seek help from Turtlemint’s executives who help in solving your questions. There are educative insurance blogs on Turtlemint’s website which educate customers and makes insurance simplified. So, you can choose Turtlemint for buying the best pension plan available in the market.

Best companies offering pension plans

Some of the best pension plans available in the market include the following: