Types of Pension Plans

Types of Pension Plans

Pension or retirement plans offer the dual aspects of investment for retirement and life insurance cover. By allocating your surplus savings towards your pension plan, you will end up with a substantial sum in a phase-by-phase manner. There are a variety of types of pension plans offered by a number of companies present in the financial sector.

Types of Pension Plans

In order to assist you in choosing the plan that meets your financial needs here’s a list of the various types of pension plans-

National Pension Scheme (NPS)

NPS is a pension program established by the Government of India. It is meant to act as a social security scheme which assists the employees of all the three sectors to the age of 60 years. During this period, individuals can invest their savings in the NPS and withdraw up to 60% of their corpus once they approach the age of 60 years. NPS offers the flexibility which allows the investors to switch the funds based on their specific requirements, they also receive a lump sum maximum to 60% of corpus at the age of 60. NPS operates its activities under the supervision of the Pension Fund Regulatory and Development Authority (PFRDA).

Traditional Pension Plan

Traditional pension plan comes with four options i.e a regular pension plan, a pension plan with life cover, a pension plan along with immediate annuity returns and a pension plan with deferred annuity payments. The following shows the explanation of each option-

Under the regular pension plan, you can invest all the money that you set aside and get a corpus at the end of the term including the interest earned. In this type of plan, if you are not able to survive till the end of policy term, your beneficiary would receive the corpus along with interest earned until the time of your death.
The pension plan with life cover option takes out a part of the savings set aside by you to pay a premium for life coverage through the policy term for a sum assured. Under this option, your nominee is entitled to receive the sum assured in case of your untimely demise, before the maturity of the policy.
The pension plan with immediate annuity payments option allows you to start earning an regular income from the month following the month of investment. This option is similar to earning monthly interest income from a fixed deposit in a bank.
The pension plan with deferred annuity payments option allows you to collect a corpus by paying regular premiums during the policy term. At maturity, the premiums paid and interest earned, are clubbed together to form a substantial corpus.

These pension plans are known as traditional pension plans because the premiums paid by the policyholder are invested in government and debt securities which are considered to be safe and involve less risk.

Unit-Linked Pension Plans

The main feature of ULIPs is that it provides both an investment opportunity and life cover, the investment aspect is represented by investing the savings in equity related funds. These plans provide the perfect investment opportunity for you with different risk profiles i.e low, medium and high. You are also allowed to switch between fund options during the policy term at your convenience as per the terms and conditions of the policy.