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Guaranteed Pension Plans - Understand Assured Financial Independence at Retirement

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Guaranteed Pension Plans - Understand Assured Financial Independence at Retirement
February 09, 2023

Table of Content

 

Introduction

Retirement is possibly one of the phases in an individual’s life when guaranteed income is the need of the hour. A guaranteed pension plan goes a long way in fulfilling this need. This is the stage in a person’s life in which income is no longer regularly generated. So, people must plan to safeguard their financial future with a guaranteed plan.

Benefits of a Guaranteed Pension Plan

If you are a salaried individual, or even if you own a business, a guaranteed pension creates financial security for retirement. By investing a sum on a regular basis throughout your earning life, you can guarantee a corpus at retirement. The money you place in a pension fund regularly is invested in such a way that yields a regular income flow at retirement. Here are the key benefits:

  • By starting your investment early while working, you can build a corpus for your retirement gradually.
  • You get the advantage of a guaranteed source of income during your retirement.
  • Some pension plans offer you a guaranteed income flow in your retirement, lasting up to your whole life (hence, called a “guaranteed pension plan”).
  • You get several options in an annuity.
  • Annuity is receivable on a monthly, quarterly, bi-yearly, or yearly basis, according to your goals.
  • You can select your date of retirement for annuity payment to begin.

Features of a Guaranteed Pension Plan

Some benefits of a guaranteed pension plan overlap with some of the features. Nonetheless, here are the main features:

  • A Guaranteed Benefit at Maturity

    In any plan with a maturity period, there is a guaranteed benefit at maturity. The benefits at maturity in a guaranteed pension plan constitute the value of the fund, or 101% of premiums (regular investments made by the pension holder), the higher of the two being applicable.

  • Guaranteed Benefit on Death

    Every pension plan includes a death benefit, payable to nominees after the passing away of the holder of the plan.

  • Tax Advantages

    Under Section 80C of the Income Tax Act#, the proceeds of a pension plan are exempted from taxation. This may depend on the plan.

  • Coverage for Life

    Dependents of pension plan holders get financial security for life.

  • Discontinuation

    You may discontinue a plan at any time.

Steps to Purchase a Guaranteed Pension Plan Online

You can follow the steps below to buy a pension plan online:

  1. Choose your plan by visiting the website of the plan you require.
  2. Pay a lump sum payment or pay regular premiums.
  3. Select the option for annuity.
  4. Opt for the frequency of payouts of the annuity.
  5. Pension plans will kick in at retirement provided all premiums are paid, and plans are not withdrawn or discontinued.

Plans at a Glance

When you buy a guaranteed pension plan, you get a range to choose from, depending on the ages of entry and exit. The options for annuity also change with these ages. Here are some aspects of guaranteed plans at a glance:

Term of Policy Tenure of Premium Minimum Entry Age Maximum Entry Age Minimum Vesting Age Maximum Vesting Age
8 - 30 years 5 to 12 years 35 years 70 years 55 years 80 years

Annuity Options Available Under the Plan

Note that the annuity is the periodic payment made by the company from where the plan is issued to the holder of the plan (the Annuitant), and this is given according to a fixed tenure or till survival. The annuity options available under a guaranteed pension plan are the following:

  • Options for a deferred or immediate annuity.
  • Annuity may be obtained once a month, once in three months, once in six months or once a year.
  • Through the facility of “top up”, annuity payments may be increased.

Conclusion

A guaranteed pension plan is a sensible way to secure your future when you retire and that of your beneficiaries should an unforeseen emergency occur (like your demise). While you earn, it is easy to opt for such a plan and grow your corpus, increasing it with increased premiums, ensuring you have the capital for the future.

ARN - ED/01/23/31818

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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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# This material has been prepared for information purposes only, should not be relied on for tax or accounting advice. The customer is requested to seek tax advice from his/her Chartered Accountant or personal tax advisor with respect to his/her personal tax liabilities under the Income-tax law.

# The above stated tax benefits are subject to the provisions & conditions mentioned in the existing Income Tax Act, of 1961. Tax Laws are also subject to change from time to time.

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