Retirement planning plays a vital role in meeting financial obligations & ensuring the financial safety of the insured’s family. Amongst the different Pension Plans in India, the Annuity Pension Plan is the safest &most secure option, providing a steady source of income once you retire by investing over a period of time or in lump sum. The funds accumulated over a period of time in a single or lump sum payment helps generating returns. This amount is then disbursed regularly during retirement years.
These plans allow to customise the different investment, fund accumulation& payout options, according to the priorities & choices. It further ensures that the payout amount is well-aligned with the financial goals of the investor.
Different Types of Annuities
Provided are the different types of Annuities available in India:
- Immediate Annuities
Under this plan, payouts are received immediately after the initial investment is made. This plan is best suited for those individuals who are close to retirement.
- Deferred Annuities
Under this plan, the amount is invested for a fixed period of time before the payout starts. This plan is best suited for those individuals who are about to retire in next 10-15 years. This plan also includes an insurance cover, where an amount of sum assured is paid to the beneficiaries in case of unfortunate demise of the policyholder.
- Variable Annuities
Under this plan, the amount of payout is not fixed, i.e. it is variable & varies from one insurance provider company to another. Though this plan is market-linked, hence suits high-risk investors. So, if the market-related returns are high, the payouts will also be higher.
- Fixed Annuities
Under this plan, the payout amount is fixed for the complete tenure of the annuity plan.
Features of Annuity Pension Plans
Provided are the salient features of the Annuity Pension Plans:
- Safe Investment Option
This plan is best suited for those investors who are risk-averse, i.e. who are reluctant to take risks. Hence, these plans are considered to be low-level risk plans providing stable returns.
- Financial Security
Whether you choose an immediate or deferred pension plan, the annuity pension plans offer a guaranteed source of income.
- Flexibility
These plans are customisable as per your convenience, which means investors can best mould it according to their own choices & desires.
- Taxation benefits
This plan offers taxation benefits, i.e., deductions & exemptions, leading to tax savings.
- Customisable Investment Amount
The payout amount depends on the amount invested, where a Pension Calculator can play an important role in assessing the amount of investment required to get the desired income.
How to Choose the Right Pension Plan?
Provided are the parameters that are to be kept in mind while choosing the right plan:
- Financial Goals
Set up your financial objectives in terms of income requirements post-retirement, i.e. how much funds would be required to maintain your present lifestyle & bear the health-related expenses considering the inflation factor.
- Risk Tolerance
Consider a plan according to your risk tolerance level, i.e. in the case of a risk-averse individual, opt for a plan offering guaranteed returns. To get higher returns, opt for market-linked investments.
- Type of Plan
Choose a plan that best suits your requirements among different plans available, such as Immediate Annuity, Deferred Annuity, NPS, ULIP, etc.
- Annuity Options
Check out the different annuity options available, such as Annuity Certain, Life Annuity, & Joint Life Annuity.
- Charges
Compare the charges of different plans available, such as fund management charges, premium allocation charges, surrender charges, etc., to choose one that best suits your pocket.
- Reputation
Opt for an insurance company that has a good track record in terms of settlement of claims & customer support assistance.
- Taxation Benefits
Assess the taxation benefits in terms of deductions & exemptions on different plans to choose one.
Pros & Cons of Annuity Pension Plans
Provided below are the pros & cons of Annuity Pension Plans:
Pros:
- These plans offer a regular stream of income, making you financially independent post-retirement.
- These plans offer low risk because they are not linked to the market.
- These plans also offer tax benefits in terms of deductions & exemptions.
- These plans also cover spouses as well.
- There are many options available, such as Annuity Certain, Life Annuity, & Joint Life Annuity.
Cons:
- Some of the plans do not offer the option of early or partial withdrawal.
- These plans do not offer higher returns as they are not linked to the market; hence, they are considered to be low-risk investments with stable income.
Eligibility Criteria
Provided are the eligibility parameters that are to be met to invest in an annuity plan:
- The minimum age to qualify for investments is 18 years, which may vary from one insurance provider company to another.
- The maximum age to qualify for investing in annuity plans is 80-99 years.
- Many of the insurance provider companies have a pre-determined purchase price for an annuity plan.
Difference between Annuity & Pension Plans
Provided are the basic differences between Annuity & Pension plans:
| Basis of Difference | Annuity Plan | Pension Plan |
| Purpose | It helps in providing a stable income source post-retirement. | It helps build a retirement corpus. |
| Payment Structure | Invest in one single payment to receive regular payouts afterwards. | Regular payouts during working tenure to receive regular payouts. |
| Flexibility | More flexible in terms of payout options offered. | More rigid |
| Risk & return | Guaranteed returns with lesser risk | Some degree of risk depending on the type of investment |
| Longevity | Income for life | Depends on the accumulated corpus |
Conclusion
An annuity plan offers a valuable solution in case you want to diversify your income in different options, or you are a conservative investor, you want to prioritise securities or a retiree.This offers the best way to plan your post-retirement tenure & maintain a stable source of income.
