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Annuity Pension Plans in India

Retirement is an undeniable stage in every working person’s life. It is a stage in life where it is likely to bring the feelings of apprehension especially in terms of finances. Retirement planning helps you live financially independent in the future years. As a tool of investment and financial security, the annuities have been around quite for a long time.

In this article, we will be talking about the Annuity Plans in India, its Benefits, Options, types, choosing the Right Pension plan, Eligibility Criteria and much more.

What are Annuity Plans

An Annuity is an Insurance product which can be used for the retirement planning. You need to make investments so as to achieve a lump sum amount at the time of the retirement. These payments are used to meet up financial obligations, thereby ensuring that you live a safe and comfortable retired life. These payments are determined on the length of your payment period.

What is the need for the Pension Plan

The retirement stage is a very crucial stage in every person’s life. Because everyone is scared about the future, as it is uncertain. In such cases, the Pension Plan play a very vital role in enhancing the future of the people. The Pension Plan ensures that you continue receiving regular income even after your retirement, once the regular work paycheck is ceased. A pension plan will help fund the activities and make your life cheerful.

Benefits of the Pension / Annuity Plans

A number of people are choosing for the pension plans so as to secure their afterlife and there are insurers who will guide you choose the best plan for you. However, before you choose a certain plan it is very essential to understand the characteristics of the plan, its advantages and disadvantages and all related details. There are thousands of Pension Plans available in the market and each of it has its own benefits.

Some of the benefits common to all the Pension Plans are as follows:

  • Provision of Regular Income Post Retirement

This is one of the biggest benefit of a pension plan as it provides income after the retirement. The Pension Schemes are available in India in order to cover up your daily life expenses. The schemes provide guaranteed income after retirement. There are plenty number of schemes available out there so you can choose from anyone according to your comfortability. Some of the schemes provide you with a lifelong income and others offers better returns.

  • Funds at the Time of Need

There are some Pension plans that provide lump sum amount of payments to meet major expenses through life. Before the retirement, we have several expenses to take care of life such as purchasing a house, financing your child’s education, marriage etc. Therefore, before you choose any policy make sure that you go over the details of the policy. So that you can be aware of what exactly you want to be in there in your policy scheme.

  • Tax Benefits

If you are investing some amount of money in any Insurance Policy, then that’s a good news. As the Insurance Policy comes with a set of tax benefits which you can avail at any point of time. The same goes for the Retirement Pension Plans. Check all the policies before investing your money on it. Investing on a Pension Plan at an early stage will help you save considerably on the tax payments. Therefore, before investing do check the policy details and find out and understand the ways in which you can receive benefits from the available provisions of the Tax Exemption under the Section 80C of the Income Tax Act.

  • Insurance Protection

In order to provide income post-retirement, the pension plans provide Insurance Cover. This is mainly useful for providing protection during the unfortunate events of death following which the family’s income will be protected. The Insurance Covers forms a part of most of the retirement plans which are offered by the Life Insurance Providers. This is helpful so that the surviving spouse does not have to undergo into any financial burden followed by an unfortunate event.

Annuity Pension Plan Options

There are five pension plan options and these range of options varies from person to person. The pension plans are as follows:

  • Annuity Payable For Life

It is the fixed annuity that is paid at the regular intervals throughout the insured’s life. The pension validity is ended after the annuitant’s death. If you don’t have any obligations after your death then you can opt for this option. This pension scheme provides the highest amount of pension as compared to the other schemes.

  • Annuity Payable for Life with a Guaranteed Period

Here the annuity is paid for a certain period of time till the annuitant is alive. If the guarantee period is shorter then you will earn a higher pension. The annuity stops on the death of the annuitant. If you have kids who can take care of you after a few years then this option is the best.

  • Life Annuity with Purchase Price Return

This option is best if you want to leave any amount for your dependents. The annuitant will get the pension till he dies and after his/her death the purchase price will be handed to the nominee.

  • Increasing Annuity at a Fixed Rate

In this option, the annuity paid is increased each year.

  • Joint Life and Last Survivor Annuity

In this option, the annuitant will receive the pension till he dies, if his spouse survives then he/she is entitled to the pension. The considerable amount of the pension to be paid to the spouse can be selected.

Types of the Annuity / Pension Plans

The following are the types of the annuity / pension plans available:

  • Deferred Annuity

In this annuity scheme, the annuitant has to pay premiums till the end of the policy term. After the term, the annuitant will start receiving the pension. There is no tax levied on the amount the annuitant invests. You can also make a One Time Payment or make regular contributions towards the plan.

  • Immediate Annuity

In this case, the annuity has to deposit a large amount and the pension will begin immediately. The annuitant can avail the tax benefits that are prevailing in India.

  • With and Without Cover Pension Plan

The “With Cover Pension Plan” will provide you a life cover and a lump sum amount is paid to your family after the event of death. Whereas the “Without Cover” Pension Plan will not provide you any life cover. The amount is paid to your dependents until the end of the death date. Deferred Annuity is “With Cover” and Immediate Annuity Plan is “Without Cover”.

  • Annuity Certain

Here the annuity is paid for a certain period of time. If he dies before the period then the beneficiary will receive the amount.

  • Guaranteed Period Annuity

Here the annuity is paid for a certain period regardless, of the survival of the annuitant.

  • Life Annuity

Here the pension is paid till the annuitant’s death. If the Spouse’s option is chosen then the pension will be paid to the spouse.

This scheme is introduced by the Government. You have the option of withdrawing 60% of the amount at the time of the retirement and the rest amount is used to purchase the annuity. The maturity amount is not tax-free.

APY subscribers are to touch 1 crore by March 2018 – Ministry of Finance

Subscribers of Atal Pension Yojana (APY) is expected to increase to 1 crore by March next year, as stated by the Ministry of Finance.

In an event organised by PFRDA (Pension Fund Regulatory and Development Authority), Financial Services Secretory Rajiv Kumar said that

APY is not only a flagship scheme of the government, it is an important instrument for inclusion…within three years, the scheme has been able to mobilise nearly 69 lakh accounts

He also said that keeping the huge population of the country in mind, pension coverage is very low which needs to go upward.

When the enrolment under PMJJY (Pradhan Mantri Jeevan Jyoti Bima Yojana) and PMSBY (Pradhan Mantri Suraksha Bima Yojana) can reach to the level of 13 crore, I see no reason for APY to lag behind. We have fixed a target of 1 crore this year to be achieved by March 31
he also added.

Atal Pension Yojana (APY) is a scheme which is backed by the government and it is specially designed keeping the unorganised sector in mind. This scheme is administered by the PFRDA (Pension Fund Regulatory and Development Authority) under the NPS (National Pension System). This scheme was launched in order to cultivate savings habit in unorganised section of the society. And in old age, this scheme helps the weaker section by providing regular income. As under this plan the subscribers will be given regular pension once they have attained the age of 60 years old, depending on the amount they have invested and tenure.

Recently government have mandated Aadhaar card with every other official government documents and schemes. Hence, Government have made Aadhaar compulsory for the APY (Atal Pension Yojana) beneficiaries.

An APY subscriber will have to get the Aadhaar number recorded in his or her APY pension account and also in his / her savings account where the periodic pension contribution installments are debited and government co-contribution is to be credited

And PFRDA (Pension Fund Regulatory and Development Authority) is also offering APY by Aadhaar in a completely digital manner.

PFRDAs chairman Hemant Contractor added that pension regulator has developed the process to offer APY enrolment through e – NPS (national pension system) platform for wider reach.

Till now the interested people had to visit bank or could enrol through business correspondents and now they can enrol themselves at the convenience of their house i.e. through internet.

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