5 Things to Keep In Mind While Investing In Pension Plans

There are things to remember before you decide on pension plans. You should have your retirement planning. Planning should begin when you are young. You should go for the best retirement plans. Such plans are also known as a retirement pension plan. When you begin investing in pension plans, and especially at a young age, you will be building an adequate corpus that will last during your retiring years. You can get up to the estimated retirement corpus if you have a needed retirement pension plan. There are five things you should keep in mind while investing in pension plans:

  • Keep an eye on the accumulation period. A regular pension plan includes a period from the start of the policy to the time when the benefits you start getting. You are paying the premium during this period. You are a policyholder now during this stage. Your investments or premiums are kept in some financial units. It in its turn earns interest and on which the tax is deferred.
  • You should purchase an annuity plan. The moment you reach the age of retirement; the company that insured you will allow you to make withdrawals @ 1/3rd of the savings that was accumulated. The remaining portion of the money will be used to purchase an annuity plan at a rate of interest that suits you. You start getting monthly income at an interest rate pre-decided by you. The annuity that you receive is taxable when you retire.
  • You should be aware that pension plans are inflexible. All pension plans are not the same in terms of flexibility. Some plans allow you to withdraw or surrender during the period of policy but other plans don’t give you this facility. You can do so when the policy matures. For getting urgent financial assistance, a pension plan is not a great option. Hence, it is your option. You start investing and don’t expect to withdraw and stick to the plan. It doesn’t matter whether you gain anything out of it or not.
  • Unit-linked pension plans or ULPP. It is in demand compared to others. It takes care of the problems of not being able to be flexible about the pension plans. It is to take care of the drawbacks of inflexible pension plans. This scheme offers a maximum return. Under this scheme, a part of your investment is going to the market to earn the benefits. It calls for your risk appetite because there is a risk of some amount getting lost in the market.
  • You don’t get tax benefits in regular pension plans. You get the benefits of tax deductions under section 80C of the IT Act while paying the premium for your pension plan. You will not receive this tax deduction advantage in the case of the real pension you get during the annuity period.

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