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Types of Pension Plans and Their Tax Benefits

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Types of Pension Plans and Their Tax Benefits
November 05, 2023

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Having had a lifestyle during the days we work, post retirement, one expects at least one level of that stability in the form of regular income. An income that can look after your post-retirement expenses. Pension plans are one way of not just securing your future but at the same time avail tax benefits. These pension plans are offered by both public as well as private sector companies. These pension plans help you decide on what day you wish to start receiving your pension.

Different Types of Pension Plans

  • NPS :

    National Pension Scheme or NPS is an option in which you will receive a regular pension after retirement. NPS helps you to contribute to a pension account during your career. Your funds are invested in a mix of debt and equity markets as per your choice. Once you at the age of 60 you can withdraw a part of the investment corpus as a lump sum and use the remaining for purchasing an annuity plan which will guarantee a regular income.

  • Pension funds :

    Pension plans are a good way to secure your financial future, post your retirement. Pension plans that are maintained by the employers. Pension plans are vital to safeguard you from uncertainties that may come unannounced post your retirement.A Pension fund is a plan/scheme which will provide you a retirement income You may invest in government securities or in a mix of debt and equity.

  • Immediate annuity plans

    Immediate annuity plans are those plans wherein a person makes a one-time investment in a lump-sum plan and receives the money regularly as pension for the rest of their lives. While the pension can be with immediate effect; the frequency can be rolled out monthly, quarterly, yearly or semi-annually.

    Immediate annuity plans are suitable for those people who do not wish to delay receiving their pensions after retirement, however, the biggest issue with this plan is that you cannot withdraw from the plan or cancel the annuity. The returns on this annuity plan can vary as well, sometimes higher sometimes lower.

  • Deferred annuity plan

    Deferred annuity plan basically helps you defer the time of payment of the pension. It consists of two phases -- accumulation or savings phase and income phase. In the previous, the policyholder pays premiums at regular intervals. After this phase, the latter phase begins wherein, the policyholder can withdraw 1/3rd of the money and the remaining has to be invested in buying an annuity product to generate regular income for the rest of your life.

Deferred annuity plans is of two types:

  • Traditional retirement plans

    In this plans, wherein investments are made in debt instruments such as government securities as they are at low-risk and thus the most preferred option for those who are averse to risks HDFC Life Click 2 Retire, retirement plans might just be the answer you were looking for.

  • Unit linked pension plans

    ULIPs are meant for those who plan retirement early and seek higher returns on investments. One also has the scope to invest in different assets in a unit linked pension plan. The assets could be in the form of equities, mutual funds etc. Check out HDFC Life Click 2 Invest ULIP  to plan your investments accordingly.

    That there are tax benefits when you invest in pension plans is no hidden fact. The Section 80CCC of the Income Tax Act was introduced by the government in order to make people invest in pension plans. Under this, any investment made towards pension plans can be deducted from gross income, thus saving taxes. Hence, the sooner you plan your retirement, there are chances of getting better plans and higher returns. Choose your pension plans wisely.

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ARN: ED/12/19/17049

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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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