A few years ago, people used to say that the ‘only government job is a secure job where you get benefits even after retirement. It become a joke nowadays. If a person wants smooth retirement planning, he can easily do so by investing some amount regularly in a private pension plan.
Starting saving in younger years, individuals can spread their savings over an extended period. Moreover, they can decide when they break from their financial responsibilities and enjoy their retirement life hassle-free.
What is a Private Pension Plan?
A private pension plan, also known as a private pension scheme or a personal pension plan, is a retirement savings arrangement that individuals set up independently to supplement their retirement income.
Numerous organizations assist individuals by providing different interest rates on the invested amount. Individuals follow rules and regulations like investment tenure, amount, market rate, withdrawal limit and duration, etc.
Is a Private Pension Plan Under the National Pension System (NPS)?
Yes, it is. The private pension plan is under the National Pension System (NPS). NPS offers pensions for both private and public sector employees after retirement.
It mainly provides a platform for individuals investing monthly savings, long term for acquiring the investment amount add on interest amount after retirement. The entire system is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).
Under the NPS, there are two types of accounts:
Tier – 1
Tier 1 is a primary and mandatory account for private and public sector employees. You can contribute a minimum of 500 to 1000. There is no maximum limit on contribution. As per section 80CCD, you can contribute up to 10% of your salary (for salaried individuals) or 20% of your gross total income (for self-employed individuals).
In tier one, any individual is not allowed to withdraw until becoming 60. Yet if anyone meets certain conditions, such as permanent disability or critical illness. A limited partial withdrawal is allowed under specific circumstances.
Tier – 2
Tier 2 is an optional account for individuals who want flexibility at the time of withdrawals. Contributions to the Tier-II account do not qualify for tax benefits under Section 80CCD. The contributions and withdrawals from this account are treated like a regular investment account. Non-subscribers of NPS also invest in this account.
It has a lower minimum contribution requirement compared to the Tier-I account. The minimum initial contribution is usually Rs. 1,000, and the minimum subsequent contribution is Rs. 250. Organizations can plan private pension plans for their company employees under the National Payment system.
Why Do Employees of the Private Sector Start the Private Pension Plan Today?
Employees of the private sector often worry about thinking of spending after retirement. They will face a money crisis in future due to not getting a pension from the government.
But private pension schemes with different benefits can make every retiree’s life easy. Let’s talk about the benefits of having a proper private pension account.
➔ Lifetime Security
Individuals get lifetime security once they plan for a private pension plan. This plan ensures a source of continuous income during their retirement year. Proper private pension plans ensure financial stability and peace of mind.
By contributing to a private pension plan, individuals can create a safety net that safeguards their standard of living when they are no longer earning a regular income, enabling them to meet their daily expenses and medical needs and enjoy a comfortable retirement.
Private pension plans offer a way to bridge the gap between one’s savings and the ongoing cost of living, thus assuring a secure and financially stable life throughout retirement.
➔ Tax Savings
Proper pension planning ensures tax savings under section 80C of the Income Tax Act. Often employees worry about getting opportunities for financial security after retirement. By selecting the right private pension policy, one can make goals for future needs.
Once you select the right policy you can work on safeguarding your financial future by reducing your taxable income and managing the investment expense more accurately.
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➔ Risk Mitigation
Yes, it is pretty challenging when private sector employees think about their source of income after retirement. Investing in private pension fund mitigate the risk associated with market fluctuations.
Moreover, risk mitigation is crucial in ensuring a more stable and reliable source of income during retirement, as the impact of market volatility is managed strategically, contributing to greater financial security and peace of mind in one’s later years.
➔ Early Retirement Planning
Once individuals invest a pretty good amount for their retirement planning. They may take early retirement as the private pension plan builds a financial cushion that supports the goal of retiring early.
By contributing to a private pension plan from an early stage in one’s career, individuals can take advantage of compounding returns, maximizing the growth of their retirement savings. This foresighted approach enables them to accumulate a substantial corpus over time, providing the financial flexibility to retire on their terms and pursue personal aspirations.
Private pension plans, with their emphasis on disciplined, long-term savings, empower individuals to take control of their retirement timeline, fostering a sense of financial independence and security that is especially crucial for those aspiring to retire early.
➔ Affordable Premiums
Once an individual plans to invest in a private pension policy, then they can choose numerous payment terms and frequency. By carefully assessing one’s budget and financial objectives, individuals can choose a plan that aligns with their affordability while still providing effective retirement savings.
Moreover, many private pension plans offer flexibility in premium payments, allowing contributors to adjust their contributions based on their financial situations.
This flexibility, coupled with the competitive nature of the private pension market, creates opportunities for individuals to secure an affordable premium plan tailored to their specific needs and financial capacities, ensuring a more accessible path to long-term retirement savings.
How Does the Private Pension Plan Work?
If you maintain the following four steps, you can easily make a successful private pension plan for retirement life.
Stage 1: Individuals should make a regular contribution during their working years.
Stage 2: The interest amount and the money return help the individual increase the employee’s fund.
Stage 3: An individual should invest for a long duration to get enough money for their future.
Stage 4: Make a proper calculation when an individual starts to invest so they would get a fair amount for their future expense.
Step to Create a Pension Plan for the Private Sector
1. Identify Your Financial Goals and Needs
Understand the need for money after your retirement first. Most importantly, identify your retirement goal like, the right age of retirement, types of expenses after retirement, lifestyle after retirement, etc. After identifying evaluate your current financial goal including the income, expense, existing savings etc.
2. Understand Different Retirement Plans
Before commencing investment in private pension planning, it is essential to research and understand numerous types of retirement plans like pension plans, individual retirement accounts (IRAs), 401(k)s, and annuities and make sure which one is suitable for you.
3. Consult a Financial Advisor
If needed, seek advice from a financial advisor. A professional can help you understand your retirement needs, recommend suitable plans, and provide guidance on investment strategies.
4. Determine Contribution Amount
First start with a small amount as a retirement investment. Then you can decide how much you can afford to contribute regularly to your retirement plan. Many retirement plans allow flexible contribution amounts, but consistency is key to building a substantial corpus.
5. Eliminate Risk Tolerance
If a private employee thinks about retirement planning they often dread the thought about the unseen future. However, an investment in a private retirement plan ensures the elimination of your risk tolerance and investment preferences.
Retirement plans offer varying levels of risk, and it’s important to choose an investment strategy that aligns with your comfort level.
6. Review Plan Details
After determining the contribution amount, reviewing the plan of investment is essential for keeping you updated. Moreover, it is necessary as well review the terms and conditions of the retirement plan, including fees, withdrawal rules, and any penalties for early withdrawals.
7. Nominate Beneficiaries
Nominate beneficiaries who will receive the benefits in the event of your demise. Keep this information updated as life circumstances change.
Best Pension Plans in India 2024
1. Private Pension Plans
➔ Tata AIA Fortune Maxima
- Entry Age: 18 – 60 years
- Maturity Age: 100 years
- Policy Term: 100 minus issue age
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 18,000
➔ Bajaj Allianz Life Long-life
- Entry Age: 18 – 65 years
- Maturity Age: 99 years of age
- Policy Term: 100 minus issue age
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 25,000
➔ HDFC Life Click 2 Wealth
- Entry Age: 18 – 65 years
- Maturity Age: 18 – 75 years of age
- Policy Term: 20 – 64 years
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 12,000
➔ Max Life Online Savings Plan
- Entry Age: 18 – 60 years
- Maturity Age: 18 – 45 years of age
- Policy Term: 20 – 64 years
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 12,000
➔ ICICI Prudential Signature
- Entry Age: 18 – 75 years
- Maturity Age: 18 – 75 years
- Policy Term: 99 years
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 24,000
➔ Tata AIA Life Guaranteed Monthly Income Plan
- Entry Age: 6 – 60 years of age
- Maturity Age: 68 years of age
- Policy Term: 5, 8, 12 years
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 36,000
➔ Bajaj Allianz Pension Guaranteed Pension Plan
- Entry Age: 0 – 100 years of age
- Maturity Age: 68 years of age
- Policy Term: 0 – 100 years of age
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 25,000
➔ Max Life Forever Young Pension Plan
- Entry Age: 30 – 65 years
- Maturity Age: 50 – 75 years of age
- Policy Term: 10 years to 75 years
- Tax Benefits: Offers Tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961
- Minimum Amount of Investment: Rs. 48,000
2. Pension Planning – Government Backup Plan
➔ Atal Pension Scheme
The Atal Pension Yojana (APY) is a social security scheme in India that aims to provide a defined pension to individuals in the unorganized sector. Launched by the Government of India in 2015, the Atal Pension Scheme primarily targets workers in the informal economy who lack access to formal pension plans.
Key Features of the Atal Pension Scheme:
- Entry Age: 18 to 40 years.
- Maturity Age: 60 years minimum
- Minimum Amount of Investment: Rs. 1,000 to Rs. 5,000
- Tax Benefits: A guaranteed minimum pension and some accumulated pension wealth to the spouse in case of the payee’s death.
➔ The Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-backed pension scheme specifically designed for senior citizens in India. Launched by the Government of India, the scheme aims to provide financial security and a stable income stream to elderly individuals during their retirement years.
Key Features of the Pradhan Mantri Vaya Vandana Yojana:
- Entry Age: a minimum of 60 years
- Maturity Age: a minimum of 70 years or above
- Eligibility: The scheme is available for individuals aged 60 years and above.
- Policy Term: The PMVVY provides a pension for a policy term of 10 years.
- Benefits: The scheme provides a guaranteed return on the investment, ensuring a fixed and stable income stream for the policyholder throughout the policy term.
Policyholders can choose the pension amount based on the amount invested. The maximum pension amount is capped, and it varies depending on the mode of pension payment.
➔ The Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) is government-backed in India specifically designed to provide financial security and regular income to senior citizens. Administered by India Post and various authorized banks, SCSS offers a safe and reliable investment avenue for individuals who are 60 years of age or older.
Key features of the Senior Citizen Savings Scheme:
- Entry Age: A minimum age of 55 to 60 years
- Maturity Age: A minimum age of 60 to 65 years
- Investment Limit: Rs. 15 lakhs
- Benefits: Interest is paid out every quarter, providing a regular income stream for the account holder.
3. Pension Planning – PSU Backup Plan
Public Sector Undertakings (PSUs) in India often provide pension plans for their employees as part of their employee welfare programs.
The specific details of pension plans may vary among different PSUs, and they typically adhere to government guidelines and regulations. Here are a few examples of pension plans offered by some major PSUs in India:
➔ Employees’ Pension Scheme (EPS) by EPFO
The Employees’ Provident Fund Organization (EPFO) manages the Employees’ Provident Fund (EPF), including the Employees’ Pension Scheme. This scheme provides a pension to employees covered under the EPF.
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➔ LIC Pension Plans
Life Insurance Corporation of India (LIC), a major PSU, offers various pension plans catering to individuals’ retirement needs. These plans may include immediate annuity options and deferred annuity options, allowing individuals to receive a regular income post-retirement.
➔ SBI Pension Plans
State Bank of India (SBI), a leading public sector bank, provides pension plans for its employees. These plans may offer options such as a lump-sum amount or a regular pension after retirement.
➔ ONGC Employee Pension Scheme
Oil and Natural Gas Corporation (ONGC), a prominent PSU in the oil and gas sector, has an employee pension scheme to provide financial security to its retired employees.
➔ NTPC Employee Provident Fund and Pension Scheme
The National Thermal Power Corporation (NTPC) has an employee provident fund and pension scheme to support its employees in their post-retirement years.
End Note
Private Pension Plans play a crucial role in securing individuals’ financial well-being during their retirement years. These plans, offered by private financial institutions and insurance companies, provide a structured and personalized approach to retirement savings.
Private pension plans offer individuals the opportunity to contribute regularly, accumulate savings over time, and receive a steady income stream in retirement. The flexibility in choosing investment options, payout structures, and additional benefits allows individuals to tailor their pension plans to meet their specific needs and preferences.
Overall, private pension plans contribute significantly to enhancing retirement security and promoting financial independence in the later stages of life.
