Ways To Maximize Your Pension Plan Investments

Amrina Alshaikh
Apr 19, 2020   •  1 view

A pension plan or a plan for retirement is essentially one that enables dual advantages of insurance and investments. If you regularly invest a particular amount towards pension schemes, then you will be able to create sizable wealth over a period of time. This will help you retire comfortably in the future. The earlier you invest, the greater you benefit later on, via the power of compounding. Choosing the right plan and maximizing returns will help you combat inflation successfully in the long haul.

Who should choose pension plans?

Each and every individual should make investments in these plans for securing their life after retirement. Under Section 80C of the Income Tax Act, there are many retirement planning investment options available. These are also eligible to get tax deductions up to Rs. 1.5 lakh. Along with traditional plans for retirement, one should consider investing in new-age pension plans which combine insurance coverage with smart mutual fund investments for earning higher returns.

Key aspects and advantages

There are quite a few key aspects that you should remember along with the major benefits.

  • Guaranteed Income/Pension- A pension plan will naturally help you get steady and fixed income post retirement. You may also opt for a plan that starts giving you income instantly after your investment.

  • Taxation Benefits- There are some plans which have tax deductions under Section 80C. There are other plans which are eligible for tax benefits under Sections 80CCD and 80CCC.

  • Liquidity Benefits- Some plans may enable steady withdrawals even during the investment period. Some may have longer lock-in periods.

  • Vesting Age- This is when you start getting the pension amount every month. This age is usually 45/50 years although these are flexible till 70 years. Some companies may allow up to 90 years as well.

  • Accumulation Period- You can pay your premiums at intervals or even as a lump sum at one go.

  • Payment Period- This is the period in which you get the pension after retirement. For example, if you get pension from the age of 65 to 80 years, then the period for payment will be 15 years.

  • Surrender value- This is the minimum value of the plan if it is surrendered prior to reaching maturity.

Types of pension plans

There are various types of plans that you can consider. These include the following:

  • Deferred Annuity- You pay premiums regularly or make a lump sum payment over a specific duration.

  • Immediate Annuity- You make a lump sum contribution and pension will commence instantly after this.

  • Annuity Certain- The pension will be under disbursal for a particular time period.

  • With Cover- Cover policies are bundled with the plan and nominees/dependents will get a lump sum in case of the policyholder’s demise.

  • Life Annuity- Pension is paid till one’s death and the with spouse option is available, i.e. spouse will keep getting this money post the demise of the policyholder.

  • Guaranteed Period Annuity Plan- Disbursal of annuity takes place for a particular time period, i.e. 5 years to 10 years or more.