Old-age pensions are a critical part of retirement planning. Investors can choose an annuity plan, where the pension starts within a month of purchasing the scheme, where they will have to invest a bigger sum or contribute to a pension plan monthly to receive pensions after retirement. Clearly, age is a critical factor in determining which plan suits your needs.

What Is An Annuity Plan?

An annuity plan allows you to pay the premium in a lump sum or in instalments—quarterly, half-yearly, or yearly. In this plan, you can start receiving monthly pensions after the first premium is paid. Annuity plans can give you 5-12 per cent annual returns. Pensions can continue till death. The subscriber can nominate a person to receive pensions after his or her death. Annuity plans are crucial for retirement planning as they ensure financial stability of the family in old age. You can allocate a part of your retirement fund to buy an annuity plan. The monthly cash flows generated from the plan will help you and the family sustain financially in the long-term. Hence, it is best to invest or reinvest in an annuity plan if you have accumulated funds. These plans also offer tax benefits under section 80C of the Income-tax, Act 1961. Annuity plans also allow premature exits under certain circumstances, provided they meet the criteria.

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What Is A Pension Plan?

Any individual aged 18 and older can invest in a pension plan. There are different types of pension plans, including the government-backed National Pension System (NPS). NPS allows you to reinvest the retirement corpus in an annuity pension plan. NPS investments attract 9-12 per cent interest, a conservative figure. Hence, it is better to start investing early in the working years so you can stay in the market longer and earn better returns. A pension plan usually offers higher returns in the long term, creates financial discipline, promotes regular contributions, and restricts withdrawals to emergencies like medical treatment or unemployment. Thus, pension plans can help you secure your financial future in old age.

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Which Is Better For Investors?

Investors can opt for any of these plans based on age and requirements. Those in their 30s or 40s can opt for pension plans as they will give them sufficient time to build their corpus while simultaneously securing their pension requirements. On the other hand, those closer to retirement, such as people aged 55-60, can invest in annuity plans, assuming they have retirement savings. Both options are suitable for retirement planning depending on their age and needs. It will be particularly beneficial for people with limited income.