Top 5 benefits of pension plans

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Retirement can be every working individual’s goal in life. As a working professional, you might strive hard during your active working years to build a secure future. 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 as well as achieve your post-retirement goal, such as travelling, pursuing an interesting hobby, and so forth. Moreover, a pension plan can offer significant retirement benefits for your long term security.

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Before we dive into the details of the 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 for the growth of your wealth. With a pension plan, you can receive a steady income after your retirement period. Since it provides financial security, you can maintain your current lifestyle even after retiring. That way, you might not have to depend on your children or any other member of the family financially.

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 to make the selection at the time of purchase. Therefore, you should first know the types under pension plans before you buy a plan for you:

  • Immediate annuity

Under an immediate annuity plan, you should make a lump-sum investment along with 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 directed towards life cover, the remaining proportion can be directed 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 be the contribution of an employee and an employer.

Apart from financial protection, pension plans can offer many benefits to secure your future. One of the major benefit 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 as well as Section 80CCD of the Income Tax Act, 1961.

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

To conclude, pension plans can be an essential part of your retirement planning. However, you should invest in pension plans early to reap maximum retirement benefits. If you are unable to understand how to retire early, talk to a financial expert. With the right financial help, you can ensure a smooth retirement period with adequate funds in your hands.