How much to invest in pension plan?
Investment in pension plan depends on following three factors.
1. Last drawn salary
Pension amount depends on the investment you make in pension plan. Generally 60% of last drawn salary is considered to maintain the same standard of living at the time of retirement.
2. When do you want pension money
- Immediate pension - Start getting pension now
- Defered pension - Start getting pension after some year min 1 year.
3. Types of benefit option
- Life annuity: Receive annuity for whole life as long as you live
- Annuity with guarantee period : Receive annuity for rest of life but guranteed period is compulsory. Example: A person purchase an annuity for 20 years. In case he dies after 14 year hsi nominee will continue to receive money for rest 6 years. In case he survive for 20 years then he continue to receive payment for rest of his life.
- Life annuity with return of purchase price : Pays annuity for life. In case of death, nominee receives the purchase price of the policy.
- Increasing annuity : Pays annuity which increases annualy to protect your income from inflation.
- Joint life annuity : Pays you an annuity for rest of your life. In case of death, income is received by partner for reduced amount.
Source of income you want to left for your family members after your death
Use these options to leave a source of income for family members
| Sl. |
Options |
Benefits to you (when alive) |
Benefits to family members (after your death) |
| 1. |
Pension for life |
Monthly pension throughout your life |
No pension amount |
| 2. |
Pension guaranteed for 5 or 10 or 15 or 20 years |
Monthly pension throughout your life
|
Pension amount for the guaranteed years (if you die before guaranteed years are over)
|
| 3. |
Pension for life with sum assured on death |
Monthly pension throughout your life |
Sum assured and bonus amount |
| 4. |
Pension for life increasing @3% p.a. (Simple interest) |
Monthly pension throughout your life (increases every year @3%) |
No pension amount |
| 5. |
Pension for life and 50% of pension to spouse after death |
Monthly pension throughout your life |
If your spouse is alive, the spouse will receive 50% of the pension amount that you were receiving (when you were alive). |
| 6. |
Pension for life and 100% of pension to spouse after death |
Monthly pension throughout your life |
If your spouse is alive, the spouse will receive 100% of the pension amount that you were receiving (when you were alive) |
Your Claim
Its an easy process. Life insurance company sends a discharge form/voucher/claim form, an month before the maturity of policy.
Exclusion
- Commit suicide on 1st year of policy.
- Policy got lapsed and insured commited sucide.
- Showing wrong age while applying for the policy
- Intentionally or unintentionally didn't disclose the health facts while taking a policy.
Annuity depends on following
- The amount you want to invest
- Your age at entry
- The benefit option chosen by you (Immediate or deferred)
When to start for pension ?
It is advisable to start saving as early as possible during your working years to build enough funds to provide you with a worthwhile income when you retire. However, should you have a savings arrangement that enables you to do so, it is still possible to purchase an immediate annuity upon your retirement.
Aternatively, you may want to consider purchasing a deferred annuity if you wish to pay a smaller premium, where the premiums paid earlier in life will be invested by the insurance company to provide for your retirement income.
What about Maturity payments?
The pensioner has the option of withdrawing up to one third of the maturity amount in cash, otherwise, if the pensioner dose not commute then full amount is invested to buy annuity.
If the pensioner commutes, then he/she will have to buy an annuity with the remaining two thirds amounts from any life insurer of his/her choice. i.e the pensioner can even ask the insurer to transfer all the funds to another insurer that gives a higher pension, at no extra cost.
What about other similar schemes like Provident funds?
Provident fund gives you a lump sum at retirement which get spent in 3-4 years. But pension plan gives a stream of payments thoughout your life. Hence it is more dependable. Generally people invest their provident fund to buy a pension plan for them. So why not start early?
Do Pension plans also qualify for tax relief /deductions ?
Yes, the investor is eligible to claim rebate U/d Sec. 80 CCC; Max. limit Rs 10000.
How does the Taxation of annuity payments work for pensioner?
a).Regarding one third of the commuted maturity amount, is treated as tax free in the hands of the pensioner.
b). The annuity received out-of the remaining two-thirds amount, is treated as income of the pensioner and taxable as per his status.
