Top 5 benefits of pension plans


Retirement can be every working individual’s goal in life. As a working professional, you might strive hard to build a secure future during your active working years. According to a report, 80% of the Indian population are habitual savers. Although savings can be crucial for your retirement, you should invest in pension plans to safeguard your retirement period and achieve your post-retirement goal, such as traveling, pursuing an interesting hobby, etc. Moreover, a pension plan can offer significant retirement benefits for your long-term security.

Before we dive into the details of retirement benefits, let’s understand what a pension plan is to make informed decisions in the future:

What are pension plans?

A pension plan can be a retirement investment plan that can let you park your savings to grow your wealth. With a pension plan, you can receive a steady income after retirement. Since it provides financial security, you can maintain your current lifestyle even after retiring. That way, you might not have to depend financially on your children or any other family member.

Under pension plans, you can find different types to match your needs. Since there are various available types of pension plans in the market, you might get confused about selecting the purchase time. Therefore, you should first know the types of pension plans before you buy a plan for you:

  • Immediate Annuity

Under an immediate annuity plan, you should make a lump-sum investment and timely premium payments.

  • Deferred Annuity

The deferred annuity can be divided into two stages:

  1. Accumulation phase- You can invest your money at a young age from the growth of your funds.
  2. Vesting phase- You can withdraw your money after the retirement period.
  • Pension plans associated with insurance

There are pension plans that can combine insurance and investment under a single integrated plan. While a major proportion of your premium can be towards life cover, the remaining balance can be towards the available fund options under pension plans.

  • Work-based pension plans

A work-based pension plan, such as the National Pension Scheme (NPS), can contribute to an employee and an employer.

Apart from financial protection, pension plans can offer many benefits to secure your future. One of the major benefits provided by a pension plan can be advanced planning. If you struggle to understand how much money you require for retirement, you should invest in a pension plan.

Pension plans can provide tax benefits that can allow you to save more. For instance, if you invest in a pension plan like the NPS Scheme, you can claim a deduction as high as Rs. 2 Lakhs from your taxable income, according to Section 80C and Section 80CCD of the Income Tax Act, 1961.

When investing in a pension plan, you should make regular contributions. You can inculcate a disciplined investing habit and develop a substantial retirement corpus with regular donations. However, you should invest early to ensure your corpus is huge by the time you reach retirement age. Since you have a lot of time on your hands to build your corpus, the power of compounding can play a crucial role. With compounding, you can earn interest on your returns on investment.

To conclude, pension plans can be essential to your retirement planning. However, you should invest in pension plans early to reap maximum retirement benefits. Talk to a financial expert if you cannot understand how to retire early. With the right financial help, you can ensure a smooth retirement period with adequate funds.