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Facts to Be Considered Before Going for a Pension Plan

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Facts to Be Considered Before Going for a Pension Plan
December 17, 2023

For the essential purpose of creating and retaining sufficient fund coverage for the post-retirement life, it is very important to invest in related insurance plans that can give a guaranteed annuity benefit. The benefits accorded by such plans must be extensive and in fulfillment of your specific needs and requirements. A pension plan is one way of securing your finances and ensuring that you have sufficient financial strength after your retirement in the absence of a regular monthly income. A pension plan is an annuity product and it serves not so much as an investment tool than a retirement centric plan and comes with a prefixed mandatory condition of having to invest more than 65% of the accumulated main corpus on annuity.

There are certain facts which must be considered before choosing a pension plan. These facts are:

  1. When a person purchases a pension plan, it is always with a view towards having a financial resource base after retirement. The corpus accumulates over time-from the date of policy purchase until retirement. After retirement, the policy subscriber is entitled to a pre-fixed percentage of the built up corpus (generally not exceeding 35%) and the major portion of the total fund is then used for investing in an annuity instrument. Therefore, unlike ULIPs or mutual fund investments, a pension plan does not allow much diversity of choice.
  2. The fund options are fixed in pension plans. Since, a pension plan works as a retirement vehicle with focus on annuity investment, therefore, such pensions offer limited to no flexibility.
  3. Despite limited flexibility, a pension plan offers a simplified and a committed method towards building annuity benefits. Besides inculcating financial discipline and regularity, the fixed nature of investment means that your finances are cushioned from any market fluctuations.
  4. A pension plan has a different way of taxation than a regular ULIP. After retirement, the fixed percentage of the corpus that you can withdraw is tax exempt under the relevant section of the Income Tax Act. However, major portion of the corpus is usable for setting up an annuity payout (like a regular monthly pension). Such annuity payouts are taxed under the relevant income slab. Therefore, a pension plan offers limited tax benefits.
  5. Owing to the limited flexibility and lack of fund options, pension plans are rather fixed. This means that the major part of the accumulated corpus is maintained just for retirement coverage and cannot be used in any other manner. This means that in the event of some unforeseen expenditure and any unavoidable requirement, the fund cannot be used. However, at the same time, given the fact that the sole thrust of accumulation in a pension plan is retirement, it is always better to make a list of priorities and then choose accordingly.

HDFC Life offers HDFC Life Pension Guaranteed Plan - a single premium annuity plan that gives the benefit of a guaranteed regular pension and gives you the freedom of choosing the frequency at which you wish to receive the regular income. For details, click on the mentioned link: https://www.hdfclife.com/retirement-and-pension-plans/pension-guaranteed-plan.

PENSION PLAN:CALCULATE PREMIUM

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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