Retirement is the end of your working life and so as for your active income source. A pension plan helps you lead a financially secure life even after you retire and have no more source of income. There are Different Types Of Pension Plans Available In India. It’s important that you select the most suitable one according to your financial situation.

A pension plan involves depositing a regular periodic or a lump sum amount and the same is returned to you after retirement in regular installments so that you can meet your regular expenses. Here are various pension plans that you should be aware of.

Traditional Pension Plan

In a traditional pension plan, the fund is invested in government securities or eligible low-risk assets. The purpose is basically to save your capital from various market risks. The traditional plan usually offers a guaranteed regular income for the defined tenure. The return offered in a traditional plan is often lower than the prevailing bank’s FD rate.

Pension ULIPs

There are Unit-Linked Insurance Plans (ULIPs) in the form of pension plans which are linked to market returns. Your investment is invested in a mix of assets such as equities and bonds. The presence of equities provides a high return but also exposes your investment to high risk. Your corpus at the time of retirement depends on the performance of the underlying assets. Invest in ULIP only if you have a high-risk appetite. The return on pension ULIPs is not guaranteed, however, it has the potential to generate a better return than the prevailing inflation rate.

Annuity Pension Plan

Annuity plans can be of two types – deferred annuity and immediate annuity.

In the deferred annuity plan, as the name indicates, the payment is deferred. You keep investing a regular amount periodically for a certain number of years or invest a lump sum single amount. You receive the pension amount periodically after your retirement.

Immediate annuity starts immediately. All you have to do is to invest a lump sum amount and the periodic payment starts immediately.

Add-Ons Of Pension Plans

You can also add life cover to the pension plan. Having life insurance as an add-on provides a lumpsum amount to the family of the policyholder on his/her death.

Finally

You should plan about pension income when you start your professional life. Time plays the most important part in any type of investment. Pension plans are no different. Let us take an example. If you start investing Rs 10,000 per month from the age of 25, till the age of 60 at the rate of 8 per cent, the final value of your investment corpus will be Rs 2.28 crore. However, if you start investing the same amount at the same rate from the age of 35 years, the size of the corpus will be only Rs 95 lakh.

Hence it is extremely important to start your pension plan from the beginning. You may find several sub-variants of the pension plans available in the market; choose the one that is easy to understand and suits your retirement goal.

The author is an independent financial journalist