Pension Plan Vs Risky Retirement: Who Wins?
Mr. Shah, a 70-year-old living with his wife, was a government official in his young days. After retirement, he started living with his son Sanjeev. Mr. Shah and his wife lived happily with them and didn’t worry about the expenses and thought they would lead a happy life until their death, but things didn’t work according to their plan. Sanjeev and his wife started to ponder medical expenses and take care of Mr and Mrs shah and decided to settle abroad. After they settled abroad, they cared about what was happening with Mr and Mrs shah and sent them 20k every month, which was not enough for their monthly expenses. Shattered and tired of his son abandoning him at old age made Mr. Shah unhappy, he shared the incident with his close friend Mr. Kapoor. being a retired bank manager, chided Mr. Shah on pension plans and funds that he must have collected all the years he has been working and helped him claim his pension. Now Mr and Mrs shah receives an additional 10000 per month due to the pension fund that his employer saved during these days.
In your bad times, who is with you is uncertain, and you shall not be dependent on anyone to take care of your expenses once you retire. A pension plan is one such source that helps you save yourself from being a burden on anyone and take care of your expenses yourself. So after hearing this short incident, what do you think PENSION PLAN OR RISKY RETIREMENT: WHO WINS?
WHAT IS A PENSION PLAN?
A pension plan or Retirement plan refers to a pool of funds that is added to the sum of money during employees working and employment years so that a small retirement sum of money is withdrawn at regular intervals to support an employee’s retirement. It is also said to be a benefit plan as it helps to support a retired employee through regular income in his bank account.
TYPES OF PENSION PLANS?
There are 3 major types of pension plans:
- PUBLIC PROVIDENT FUND (PPF)
- EMPLOYEE PROVIDENT FUND
1) NPS ( NATIONAL PENSION SCHEME)
The government introduced the NATIONAL PENSION SCHEME to support and provide an extra income cushion for retired persons. To claim NOS, a person must invest in NOS till 60 years of age and with a minimum investment of ₹1000. There is a minimum limit but no maximum limit for investment. This money of your will be invested in debt or equity funds as per your preferences. The returns purely depend on the performance of the funds you chose. After retirement, you can withdraw up to 60% of your saving, whereas the rest of the 40% shall be used to buy an annuity plan offering you a periodic income.
2) PUBLIC PROVIDENT FUND ( PPF)
PPF is the most popular retirement planning scheme in India for the pension fund. It is a long-term investment scheme ranging up to 15 years of tenure. The impact of collection and compounding in PPF is huge and increases towards the end of the term. You can invest a maximum of ₹1.5 lakhs every year in your PPF account. You can either choose to pay a lump-sum amount or twelve installments over the financial period. Here is one intersection: the fact that your PPF investment is tax-deductible under section 80C of the INCOME TAX ACT (ITA), and the interest you earn is also tax-free. Here the government controls and sets the interest rate without any market interference in the matter.
3) EMPLOYEE PROVIDENT FUND
EPF is a savings platform organized by the government of India majorly for the salary and waged employees. Both the employee and the employer are supposed to make equal contributions in terms of amount into your EPF account. When you receive your salary or wage at the end of every month, a fixed portion of income is deducted from your salary and transferred to your EPF account by the employer. Then the same amount is invested by an employer into your EPF account. Here, The Employees’ Provident Fund Organisation (EPFO) is responsible for setting interest rates on the investments. Once you retire, you receive the amount invested by both you and your employer with accrued interest.
BENEFITS OF PENSION PLANS
- GUARANTEED PENSION/ INCOME
As discussed above, you get a steady income after you retire or immediate income, depending on how you invest. This ensures an independent life after retirement for people.
- TAX EFFICIENCY
As per section 80C of the Income-tax act, your investment in the pension plan is tax-deductible and the accrued interest is tax-free.
Some pension plans allow investors to withdraw money even at the accumulation stage. In times of crisis, one can depend on pension plans to recover the loss without mortgage of different assets or seeking loans.
- ACCUMULATION DURATION
One can choose to invest according to their comfort. A person can either pay a lump-sum amount of maximum investment or choose to pay investment in installments staggering over one financial year.
- PENSION CHECK
If a person ought to keep a check on their investment and accrued interests, they can easily.
The services are through the official government website, i.e. www.epfindia.gov.in.
To sail over hardships with ease, you need a pension plan, the best ship you can sail after your retirement. Hassle-free with easy claims and numerous options, one should have a retirement plan for the future to lead an independent life.
Pondering over pain when your loved ones consider you a burden is gigantic, and to avoid such events, one can start investing from today in pension plans. Many have already benefited from planning their retirement, claiming to walk over difficult times like a piece of cake. Choosing an independent future with your family will make investment sensible. Take the right decision, consider all the options and future aspects today.
WHAT IS THE BEST PENSION PLAN IN INDIA?
The following are considered to be the top 5 best pension plans in India:
LIC Jeevan Akshay 6 Plan
LIC Jeevan Nidhi Plan
SBI Life Saral Pension plan
HDFC Life - Click2Retire
HDFC Life - Assured Pension Plan
WHAT IS THE RIGHT AGE TO INVEST IN A PENSION PLAN?
The earlier you start investing, the better coverage you get. The legal age to start investing in a pension plan in India is 18 years.