Retirement planning is an important financial activity so that you can live a financially independent retired life and fulfil your bucket list. As your income usually dwindles after you retire, you need to create a retirement corpus over your working life so that your retirement can be easily funded. Moreover, you should ensure that the retirement corpus that you accumulate, gives you regular incomes after retirement.
This is where life insurance pension plans come into the picture.
What are pension policies?
Pension policies are retirement oriented life insurance plans. These plans come in two main variants. While one variant allows you to accumulate a retirement corpus through regular savings, the other offers lifelong incomes that are guaranteed in nature.
So, life insurance pension plans help you plan for your retirement in the best possible manner.
Types of pension plans
As mentioned earlier, pension plans come in two variants. So, here are the types of pension plans available in the market –
- Deferred annuity plans
Deferred annuity plans give you the time to create a retirement fund. You can choose the tenure of the policy and invest over the tenure to create a corpus. Then, when the plan matures, you can use the corpus for funding your retirement.
- Immediate annuity plans
Immediate annuity plans are those that pay guaranteed pensions immediately after you buy the policy.
Features and benefits of pension plans
Some unique features of pension plans include the following:
- Deferred annuity plans come in both traditional and unit-linked variants.
- Deferred annuity plans offer a death benefit during the policy tenure. Under immediate annuity plans, the annuity payments just stop on death. If, however, you have chosen the return of purchase price option, the premium paid would be refunded on death.
- A policyholder is offered three options when deferred annuity plans vest:
- Withdraw up to 60% of the maturity benefit in cash. The remaining amount of the corpus will be paid in an annuity.
- You can buy a deferred annuity plan by paying a single premium using the maturity proceeds of the pension plan.
- You can also postpone the vesting date of your pension plan, if available
- Annuities received from the pension plan are subject to tax. However, 1/3rd of the corpus that you withdraw is eligible for tax deduction under section 10(10A) of the Income Tax Act, 1961. Moreover, you can claim tax deductions of the premiums paid for deferred pension plans under section 80CCC.
- Immediate annuity plans offer multiple pay-out options of annuities. You can choose any option as per your requirement.
Importance of life insurance pension policies
Here’s how life insurance pension policies can help you plan your retirement –
- You can save regularly into a deferred pension plan to create a retirement corpus. This helps you create an earmarked investment avenue for your retirement.
- Immediate annuity plans help you earn lifelong and guaranteed incomes from your retirement fund. Moreover, under joint-life annuity plans, you can also offer financial security to your spouse by including him/her as an annuitant.
- Unit linked pension plans help you build up an attractive retirement fund with market-linked returns.
So, you should invest in the best pension plan in India to plan an ideal retirement corpus for your golden years.
Companies offering best pension plans in India
There are more than twenty life insurance companies offering pension policies in India. Here’s a pick of the best companies –
- HDFC Life
Being awarded ‘The Best Life Insurance Company in BFSI Awards 2018,’ HDFC Life is one of the leading life insurance providers in India. Pension plans offered by HDFC Life are as follows:
- HDFC Life Click 2 Retire plan
- HDFC Life Click 2 Wealth plan
- HDFC Life Personal Pension Plus
- HDFC Life Pension Guaranteed plan
- HDFC Life New immediate annuity plan
- HDFC Life Assured Pension plan- ULIP
- HDFC Life Guaranteed Pension plan
- HDFC Life Single Premium Pension Super plan
- HDFC Life Pension Super Plus
- Why choose HDFC Life pension plans?
- HDFC Life has an individual death settlement ratio of 99.07% for the financial year 19-20.
- It provides 1-day claim settlement through its ‘claim secure’ facility. HDFC Life offers a wide range of pension plans to suit the different needs of its customers.
- Bajaj Allianz Life
Bajaj Allianz Life is amongst the ‘Top 75 most valuable Indian brands 2020,’ with Assets under Management of INR 73, 773 crores and a Claim Settlement Ratio of 98.48% for the financial year 2020-21. The solvency ratio of the insurance company is 666% as of 31st March 2021.
Pension plans offered by Bajaj Allianz Life are as follows:
- Retire Rich
- Pension Guaranteed
- Guaranteed Pension Goal
- Longlife Goal plan
- Why choose Bajaj Allianz Life pension plans?
- Being one of the most trusted insurance brands, Bajaj Allianz Life offers a range of retirement plans to meet your specific requirements.
- Bajaj Allianz Life also offers ULIP based retirement solutions with a guaranteed maturity benefit of 101 % of the total premiums paid.
- Bajaj Allianz Life Long-life Goal provides annuities till 99 years of age with return enhancer benefit and the option to reduce the premiums.
- ICICI Prudential Life
ICICI Prudential Life is India’s first insurance company which was listed on the stock exchange. The company is engaged in life insurance and asset management.
Pension plans offered by ICICI Prudential Life are as follows:
- ICICI Pru Easy Retirement
- ICICI Pru Guaranteed Pension plan Deferred/ Immediate Annuity
- Why choose ICICI Prudential pension plans?
- ICICI Prudential pension plans are available in the form of both traditional and unit-linked plans.
- With the guaranteed pension plan, you can get back your purchase price upon diagnosis of critical illness or permanent disability due to an accident.
- Life Insurance Corporation of India
Owned by the Ministry of Finance, Government of India, LIC is one of the oldest life insurance companies in India. Pension plans offered by LIC are as follows –
- LIC’s Jeevan Akshay VII
- LIC’s New Jeevan Shanti
- Pradhan Mantri Vaya Vandana Yojana
- Why choose LIC pension plans?
- LIC pension plans are available to be brought both online as well as offline.
- LIC Jeevan Akshay VII offers a wide range of as many as 10 annuity options to choose from.
Claim Settlement Ratios of popular insurers
The Claim Settlement Ratio (CSR) is the percentage of claims that the insurer has settled against the total number of claims that were made in a financial year. All the above-mentioned life insurance providers have the best CSRs in the industry. Have a look at the CSR of the popular insurers for the financial year 2019-20–
|Name of the insurance company
|Claim Settlement Ratio
|Bajaj Allianz Life
|ICICI Prudential Life
Factors to consider when buying pension policies
You can buy a pension plan easily, online or offline. However, before buying the policy, here are some factors that you should consider –
- Starting early
To build up a sufficient retirement corpus, you should start saving as early as possible. Buy a deferred pension plan at an early age and choose a long term period. This would give you time to accumulate a considerable retirement corpus.
- Choose to receive annuities after retirement
Vesting is when a deferred pension policy matures. After vesting, you can choose to receive pension income from the policy. Alternatively, you can also invest in a single premium deferred annuity plan to defer the vesting by a few years. Choose to receive the annuity payments after retirement, i.e. when your income stops. This would help you earn regular incomes from your pension plan after you leave work.
- Opt for a joint-life annuity if you have a spouse
If you are investing in an immediate annuity plan, choose the joint-life benefit if your spouse is alive. This would ensure that the annuity payments continue if either of you is alive. This would give financial security to your spouse in your absence.
- Choose a plan as per your risk appetite
Deferred annuity plans come as endowment plans, as well as a unit, linked plans. If you are risk-averse, invest in an endowment plan. However, if you don’t find investment risks, ULIPs are better as they can offer attractive returns.
How to choose the best pension plan?
As you have seen above, there are multiple insurance companies offering one or more pension policies for your retirement needs. To choose the best pension plan in India, here are some tips that you can use –
- Compare and buy
Always compare the available pension policies before you pick one. Comparing helps you find the best retirement plan that offers inclusive coverage and has the best potential of creating a sufficient corpus for your golden years. To compare, you can visit Turtlemint and have a look at the plans available. Turtlemint is tied up with leading insurance companies that offer the best pension plan in India. So, at Turtlemint’s platform, you can find some of the best retirement plans, compare between them, and then choose the right policy that meets your retirement planning needs.
- Check the annuity rates
In the case of immediate annuity policies, the best pension plan would be the one that offers the best annuity rates on your corpus. So, compare the annuity rates under different immediate annuity plans and then choose a policy that offers the highest annuity pay-out.
- Check the returns
Traditional deferred pension policies might offer bonus additions. There might be guaranteed or loyalty additions as well that would help you accumulate a considerable corpus. So, if you are choosing traditional deferred annuity plans, look at the returns promised. Choose a plan that offers the maximum additions to the corpus so that your retirement fund is enhanced.In the case of ULIPs, however, check the returns offered by the different funds under the plan. Compare the returns over the past years to find funds that have been yielding consistently high returns. Plans that offer such funds would, thus, be the best retirement plans.
- Check the insurer’s credentials
Lastly, you should also check the reputation, market worth and the Claim Settlement Ratio (CSR) of the insurance company from whom you are buying the pension plan. The insurer should be a market leader with a high CSR so that you can trust the company with your retirement plan.
Check out the best pension plans in India and then invest in one so that you can have a worry-free retired life.
Annuities are paid throughout your life. Under most plans, annuities are paid up to 99 or 100 years of age.
When your deferred annuity plan matures, you can commute up to 60% of the accumulated corpus. However, the entire amount of commuted pension is not tax-free. Tax exemption is allowed only on 1/3rd of the accumulated corpus, i.e. 33.33%. The remaining 27.67% would be taxable.
Annuities are taxed as your income. They would be added to your taxable income and taxed at your tax slab.
If you opt for endowment oriented deferred annuity plans, the death benefit would be guaranteed. However, under unit-linked plans, the death benefit is the higher of the sum assured or the fund value.
A joint-life annuity is one that covers two lives, usually you and your spouse. The annuity payments continue till either of the annuitants is alive. If both the annuitants die, the annuity stops.