Pension plans allow you to set aside a portion of your earnings for the purpose of building up a source that will provide you with a regular income in the later years to come, once you have retired. Having a retirement and the best pension plan in India ensures that even if your professional income starts to decline, you can still maintain your quality of living. Retirement planning and opting for a pension plan have become even more vital in light of the high cost of living and rising inflation.
After retirement, most elders want to avoid putting their children in financial hardship. After you retire, you can maintain your independence with the best pension plan in India. The pension plan is a reliable source of income, so you won’t have to rely on anybody else to look after your well-being.
The following are all the pension plans that you should be aware of:
- Public Provident Fund (PPF)
PPF is a long-term investment plan that lasts for 15 years. As a result, compounding has a considerable impact, especially at the conclusion of the term.
You can put up a maximum of 1.5 lakhs in your PPF account each year. You can pay in whole or in twelve equal instalments over the course of the fiscal year. Under Section 80C of the Income Tax Act (ITA), your PPF investments are eligible for tax deductions.
Every financial quarter, the government sets the interest rate on PPFs, dependent on the income from government securities. As a result, the funds are not tied to the stock market.
- Provident Fund for Employees (EPF)
EPF is a government-sponsored savings program for salaried workers. Both your employer and you are required to contribute equally to your EPF account. Every month, your portion is deducted from your pay. The interest rate on the investment is decided by the Employees’ Provident Fund Organisation (EPFO). You receive the whole amounts you and your employer contributed, plus any earned interest when you retire.
- National Pension System (NPS)
On October 10, 2003, the Government of India formed the Pension Fund Regulatory and Development Authority (PFRDA)- External website that opens a new window to develop and regulate the country’s pension sector. On January 1, 2004, the National Pension System (NPS) was established with the goal of providing retirement income to all residents of the country.
The NPS attempts to restructure pension plans and instil in residents the habit of saving for retirement and is one of the best pension plans in India. The plan allows you to invest in both equities and debt funds, depending on your risk tolerance. You can withdraw up to 60% of your assets at retirement, with the remaining 40% going toward an annuity purchase.
To assist subscribers in saving for retirement, NPS provides a unique Permanent Retirement Account Number (PRAN) that is assigned to the subscriber. This one-of-a-kind account number does not change for the remainder of the subscriber’s life. Moreover, this one-of-a-kind PRAN can be used from anywhere in India.
PRAN provides access to two personal accounts, which are following:
Tier I Account: It’s a retirement savings account that can’t be accessed before the set time.
Tier II Account: This is simply a way for people to save money on their own time. The subscriber can take money out of this account whenever they want. On this account, there are no tax benefits.
- Annuity Plans
There are two types of annuity pension plans, immediate and deferred. The annual or monthly annuity is only paid when a certain period of time has passed. In both programs, the annuity payment can be made for a certain amount of time or for the rest of your life.
- Immediate Annuity Plan (IAP)
This pension plan allows you to start receiving a pension right away and is excellent for tax saving options for salaried employees. You make a one-time payment and begin receiving an annuity based on your invested amount. Under this plan, you can choose from a variety of annuity alternatives. According to the Income Tax Act of 1961, the premium paid is tax-free.
In the event of the policyholder’s death, the nominee continues to receive the pension for the remainder of the policy’s term.
- Deferred Annuity Plan (DAP)
This pension plan is not paid immediately in this plan but is instead deferred for a length of time determined by the policyholder. If the policyholder lives to the end of the term, the accumulated money (including the sum assured, guaranteed increases, and bonuses) is invested in creating regular income.
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY provides a guaranteed monthly pension rate of 7.4 percent for a period of ten years, making it a suitable alternative for senior citizens seeking a steady source of income with predictable benefits.
The scheme performs well in terms of liquidity, as 75% of the principal is accessible as a credit after 3 years of investment. In addition, the amount of any overdue loans will be deducted from the principal. However, it is worth noting that the program has no tax advantages.
Find out your financial goals, figure out when you want to retire, and how much money you will need after you retire. There are several variables to consider, like whether you live in a home of your own or rent, the city where you plan to retire, and so on. Next, learn more about the various types of pension plans mentioned above that are available to you, and choose the best pension plan in India that provides the most stable income stream during and after your retirement and fulfils your post-retirement needs.