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Retirement Insurance Providers & Plans Select GROUP for Insurance Plan and Details  
Pension Insurance Plan & Policy : Overview

A pension plan or an annuity is an investment that is made either in a single lump sum payment or through installments paid over a certain number of years, in return for a specific sum that is received every year, every half-year or every month, either for life or for a fixed number of years.

Annuities differ from all the other forms of life insurance in that an annuity does not provide any life insurance cover but, instead, offers a guaranteed income either for life or a certain period.

Typically annuities are bought to generate income during one"s retired life, which is why they are also called pension plans. By buying an annuity or a pension plan the annuitant receives guaranteed income throughout his life. He also receives lump sum benefits for the annuitant's estate in addition to the payments during the annuitant"s lifetime.

Pension plans are perfect investment instrument for a person who after retiring from service has received a large sum as superannuation benefit. He can invest the proceeds in a pension plan as it is safest way of secured income for the rest of his life. One can pay for a pension plan either through an annuity or through installments that are annual in most cases.

Types of Annuities / Pension Plans

    Life Annuity:

Guarantees you a specified amount of income for your life. After death, the amount invested is refunded to your nominee.

    Guaranteed Period Annuity:

Provides specified income for your lifetime and guarantees that your nominee will receive payments for a certain minimum number of years, even if you should die earlier. In case you live longer than the specified minimum number of years, you are entitled to recieve annuity payments for your lifetime.

    Annuity Certain:

Under this plan, the stipulated annuity is paid for a fixed number of years. The annuity payments stop at the end of that period, irrespective of how much longer you may live.

    Deferred Annuities:

The premiums paid into such plans may be deducted from one′s taxable income at the time of payment. In addition, the interest earned on the annuities is not taxed immediately. But the proceeds of the annuity will be taxable when they are paid to you.

Journey To Billionaire Club: Retirement (Pension) Plans India

Pension plans help investors accumulate wealth over the long-term to meet a specific eventuality-retirement. Two important options at the investor′s disposal to help him with his pension plans are life insurance and mutual funds. While it is common knowledge that life insurance companies have an array of pension plans to enable individuals to plan for retirement, a relatively lesser-known fact is that mutual funds also manage pension products.

Step 1: Start early, and retire peacefully
Never delay in planning for retirement. Start as early as possible. Make a list of your financial goals and what you own so you recognise the gap between the reality and your dreams. When you are young, your risk-taking capacity is high. Earning well, and then generating as high a rate of return as possible, is top of your agenda.

Step 2: Have a plan
Assess your incomes and expenditure, and make provisions for contingencies. For example, set aside some money for travel and medical expenditure post retirement. Try to cut down on the trivial expenditures and allocate your resources towards necessary ends like children"s education and marriage that you will incur in the course of time.

Step 3: Keep In Touch With Your Financial Advisor
If you are not in a position to make a workable plan, consult a financial advisor who will help you develop one.

Step 4: Track and review your plan
Your financial plan needs to be monitored at regular intervals to make sure you are on target to meet your objectives. You could do this on your own or take assistance from your financial advisor. Make sure the plan meets your investment objectives in changing market scenario. Also, understand and get comfortable with the risks, costs, and liquidity of your investments. For instance, as you approach retirement age you should consider paring the equity exposure and moving into debt, as you would have lower risk tolerance when you move towards retirement.

Step 5: Don"t dip into your retirement savings
Don"t touch this pool of savings pre-retirement. If you spend money from your retirement kitty to fulfill your present needs, you will lose out big in the long run. The corpus for your retirement will be that much lower.

Planning for your retirement is not a difficult task. The challenge lies in implementing the plan with discipline.
Retirement Pension Insurance Plans: Evaluation

There are many options available to an individual intending to plan for his retirement. Be it PPF, ULIP, NSC′s etc. Most retirement options fall into two categories,-those which promise a fixed assured return and those, like pension plans, which offer non-assured returns. There are very few retirement planning options available in mutual funds. Before an investor goes in for a retirement plan he needs to evaluate its various basic parameters:


In this case the comparison of returns vis a vis the fixed return instruments like PPF etc. is easy. The returns generated in the case of PPF is again, like Infrastructure Bonds, a fixed rate of 9.5 per cent unlike the returns of pension plans which can vary over a period of time. Also when it comes to comparing the returns between the two mutual fund options the investor must keep in mind, the track record of the scheme as well as his timing of entry. Both these factors will impact his return. However, in the case of infrastructure bonds, returns are fixed, irrespective of the time of entry. For instance Empirically, KPPP has turned in a better performance than Infrastructure Bonds so far. The fund has returned an annualised 15.20 per cent since inception as compared to a return of 9.5 per cent in the case of Infrastructure Bonds.

Lock in period

In case of fixed return instruments like PPF etc, the lock-in period is very long, with intermediate withdrawals after a certain number of years. In case of infrastructure bonds as well as pension funds the there is a 3 year lock-in period but in case of KPPP the withdrawal at the end of 3 years comes at a nominal penal charge.


In PPF, the liquidity is pretty low. A loan can be taken at the end of 3 years but even that is only to the extent of 25 per cent of the balance at the end of the preceding financial year. A withdrawal is permissible every year from the 7th financial year of the date of opening of the account. So, the loan and the withdrawal can be taken after a specified period of time and that too with certain riders. In the case of KPPP, the entire amount is withdrawable after the expiry of three years subject to a penal charge, otherwise the investor can exit only after reaching 58 years of age.

Rebate Eligibility

The tax benefits under both the PPF and the pension plans is the same in terms of the section 88 benefit which makes the investor eligible for tax benefits of 20 per cent of the amount invested in the scheme. The infrastructure bonds however offer an additional advantage in terms of enhanced amount of Rs 80,000 (link) of tax benefit under section 88.

Taxability of Interest/Dividend

Returns from PPF are tax free, Interest received on infrastructure bonds qualifies for tax exemption under Section 80L. This is not the case with dividend received from pension mutual funds like KPPP. Dividend received from KPPP is subject to dividend distribution tax of 10 per cent.

Minimum Investment

A minimum amount of Rs 100 has to be invested every year to keep the account alive in PPF unlike the facility of investing in instalments of Rs 500 in case of KPPP. Also the minimum amount that can be invested in the pension plans is Rs 10,000. In the case of bonds the investor has to bring in a minimum amount of Rs 5000

Maximum Investment

The maximum amount that can be invested under PPF in a particular financial year is Rs 60,000 whereas there is no such restriction on the maximum amount that can be invested in the pension plans. No tax benefit is however given for investments made above Rs 60,000 in the case of KPPP.

Investment Instalments

In the case of KPPP the minimum cumulative sum of Rs 10,000 can be invested in instalments of Rs 500. In the case of bonds the investor has to bring in the entire minimum amount of Rs 5000 in lumpsum.

Investment Mix

A comparison on this attribute is important when choosing between any pension plan offered by a mutual fund. Normally balanced schemes are offered. However, over a period of time the portfolio may vary. For instance ULIP has essentially become a growth scheme whereas KPPP is still focussed on debt though the equity component in the scheme has gone up over a period of time.

Additional Benefits

ULIP gives an insurance cover and an accident cover along with section 88 benefit, whereas, the other instruments do not offer this.