Is A Private Pension Plan The Right Move For Me?
Aakash has been a father and a husband for the last many years. Recently he was in an accident. His wife came under tremendous pressure for his treatment since the insurance company went the other way and refused to pay.
Aakash and his wife started discussing pension plans and whether a private one is a way to go. They started researching about it. The elaborate details are mentioned below;
What is a pension plan?
With each passing year, the life expectancy of humans has been increasing. There are a high number of senior citizens in the world. For this, people also require proper planning and retirement pension.
A pension plan is a systematic investment plan which supports you during old age. It accumulates a part of your savings over a long period, for a secure future. A steady flow of income brings surety. A good investment plan helps solidify retirement plans.
What is a private pension?
Private pension plans are also called personal pensions. These work similarly to workplace pensions. They are set up by an individual rather than their employer. It also provides tax relief to the individual.
This money can be invested in certain assets. You have multiple options like property, cash, the bond among others. You can choose the age from which you can take the amount of this plan. You can either take it as a lump sum or invest it.
Who requires this plan?
Private pensions can be a good way of saving for retirement. If you are working in a private company, these investments can bring security into your life. Since employers contribute to a workplace pension, it can be beneficial for you. These can prove to be important for boosting your income. Saving into both workplace and private pensions can be quite a good move.
When you pay in private pension plans, you get tax relief. Your pension provider will claim this automatically at a basic rate. It can be then added to your pension pot.
Tax benefits will depend upon the kind of pension plan you go for. Sometimes you can get tax relief on your pension contributions up to 100% of your salary as well. This will depend on the amount of your salary and other contributing factors.
Some features of pension plans
Before settling for a pension plan, form a list of certain features. Make sure the plan you choose contains these important features, among others;
The age is when you begin receiving the monthly pension. Most pension plans keep the vesting age at a minimum of 45 or 50 depending on the plan. However, the vesting can be quite flexible. It can go up to 70 years according to a pension scheme. You can choose an insurance company where the vesting age can go up to even 90 years as well.
There are two types of annuities, immediate and deferred. It is said to be the most distinctive feature of any pension plan. The immediate annuity starts immediately. After receiving the lump-sum premium, the insurance company pays the pension plan amount immediately.
In a deferred annuity pension plan, a certain amount of sum is paid in continuation after a few years. There are diverse plan options to choose from. As a policyholder, you even get the option to choose the period for which you want to receive the annuity.
In this period the investor starts receiving the payment post-retirement. It will depend on the pension plan from which year the payment will start. Sometimes an individual receives a pension from the age of 65-80 years. The payment period plan will be 15 years then.
As an investor, you will choose the premium method. It can either be lump-sum or as periodic intervals. The invested premium is accumulated over a long-term period.
The accumulation period refers to the time from which you start and end the investment. The accumulation period will depend on your convenience. Some pension schemes offer the option of full or partial withdrawal during the accumulation period.
It refers to the amount the insurance company pays to the individual if they surrender the plan before maturity. It will be paid only if the individual has paid the premium for a minimum period. When an individual surrenders the plan, they lose all benefits attached to it. The life cover is also lost if any.
Benefits of private pension plans
- Private sector has more profit motives. It is said to be more efficient. It has the potential to get the best returns for investors.
- Pension contributions are not very feasible for governments. The government rarely invests the money people pay as tax for pension contributions.
- Private pension enables the government to lower taxes. The lower-income tax also increases the incentive to work.
- Since the dependency ratio increases due to population, private pension helps reduce the government’s burden.
It is very important that as an individual you start planning for your retirement sooner. To maintain a similar lifestyle after retirement, you need to make plans.
Make sure you have ample savings which last a lifetime. This will help provide a regular income after retirement. A good insurance cover will help secure your family financially. Find a plan with minimum or no risk coverage.
The earlier you start planning for retirement, the more convenient it will be for you. You can create more wealth if you start early. It is important to have a sense of security after your retirement. Make sure you set some retirement goals, and stick to them.
From accumulation period to surrender value to payment period, consider things. Make sure that you choose a private pension plan that suits your needs. This article helps you understand the benefits of a private plan among other things.