How to Choose the Best Pension Plan in India?

Retirement planning is one of the most sought after goals for most salaried individuals across the globe. After all, who doesn’t want to score a peaceful and prosperous retirement? Though everyone wants to live happy and content post retirement life, only a few are careful enough to plan well in advance for their retirements.

Given the existing inflation and the ever-increasing dearness, not planning your retirement well in advance may lead to a chaotic and full-of-pressure post retirement life. But you’ll be surprised to know that by simply choosing a good pension plan, you may easily score a great post retirement life.

Now, you may argue that there are virtually thousands of retirement plans and which plan should you opt for. Well, the secret is simple! You must choose a plan that’s most rewarding and offers you a lot of benefits post retirement.

To make things easier for you, here we bring to you some easy ways on how to choose the best pension plans in India. It only makes sense to keep these 7 important things in mind when planning to invest in a pension plan to ensure getting the best plan possible in the Indian Insurance sector.

7 Things to Keep in Mind When Fishing For Pension Plans in India

• Present Age-Age plays a very important role in pension planning. The earlier you will start, the more time you will get to accumulate a corpus for your pension. But in case, you’re starting late, you will need to choose a pension plan that allows you to build a huge pension corpus in a shorter span of time. 
• Intended Retirement Age– What age do you want to retire? Now, this is one question that is sure to influence your pension planning. In case, you’re planning to retire early, you will need to invest in a pension plan with great returns and huge accumulation. 
• Life Expectancy- This is yet another factor that determines the direction of your pension planning. If you and your family have high life expectancy, then you’ll need to start building a pension corpus early. And if you have a family medical history, it becomes even more important to build a pension corpus to use it for medical emergencies later. Don’t forget, due to the advancements in the world of medical sciences, the life expectancy ratio is dramatically increasing per year.
• Inflation-Okay, you probably already knows what inflation really is. But you’ll be surprised to know that inflation can quickly eat all your savings and leave you empty handed. Therefore you need to carefully consider the current and expected inflation rate when deciding on the accumulation and distribution period of your pension plans.
• Investment Portfolio – Yet another factor that you must carefully consider when planning your pensions or retirement is your investment portfolio. Carefully consider how much life insurance, health insurance and medical insurance do you have in hand and till what time are they going to support you and your loved ones. Basis this analysis, determine the right amount of corpus you need to build for your retirement and invest in a pension plan accordingly. 
• Present Lifestyle-If you have been living a really healthy lifestyle, then you will have less chances of contracting an age prone disease in your retirement years. Hence, you may choose to build a pension corpus at a slow and steady pace. However, if you are the one amongst thousands who are forced to lead an unhealthy lifestyle due to work pressure or otherwise, you will more chances to contract age prone diseases. Therefore, it makes sense to choose a pension plan that allows you to build a huge pension corpus in a shorter time frame.
• Spending Pattern- Last but certainly not the least, your spending pattern too influences your pension planning to a greater extent. If you have been living a financially frugal life, it makes sense to choose a pension plan that allows you to build a huge pension corpus quickly.

Conclusion

Remember, if you’re looking to retire in peace, you must have the assurance of a substantial pension amount in hand. That’s why it makes sense to be careful and heed to the above mentioned pointers while pension planning.

Refund of Service Tax in Varishtha Pension Bima Yojana

Varishtha Pension Bima Yojana is administered by LIC and is a single premium pension policy. Looking at the increasing demand in India for this policy for the enhancement of social security and welfare of senior citizens Vatishatha Pension Bima Yojana was revived by the Government. In this policy, the post-tax return is guaranteed to be 9%-9.8% p.a.

The Government has removed the Varishtha Pension Bima Yojana from the preview of Service Tax in Budget 2015 in order to make this policy more appealing. With effect from 1st April 2015, there is no service levied on the premium paid towards this scheme.

Let us learn more about the details of this scheme 

• Minimum Entry Age – LIC Varishtha Pension Bima Yojana is only available to the individuals who are 60yrs and above. However, there is no limit on the maximum age for a person to enter in this policy. This policy can be entered only by Indian citizens.

• Time limit – This scheme is open for subscription only for a small period of one year.

• Returns – Varishtha Pension Bima Yojana assures a rate of return on the policy of 9% which amounts to 9.38% return annually.

• Lock-in Period – under this policy the investments get locked in for a period of 15 years.

• The rate of Investment – In this policy, the minimum investment is fixed at Rs66, 665/- with a ceiling limit of Rs 6, 66,665/-.The ceiling limit of this policy applies to the dependents, whole family, and spouse.

• Payout Option –The policyholder can decide as to how he wants his dependents or a nominee to get paid. He can opt for monthly, quarterly or annual option depending on the need.

• The amount of Pension – In Varrishtha Pension Bima Yojana the amount of pension ranges from Rs 500/- to Rs 5000/- per month. This amount depends on the investment amount and also which pay-out option is chosen. This pension amount is paid during the lifetime of the pensioner.

• Withdrawal – In case of any unforeseen event like critical/serious illness of spouse or self or in the case of sudden death, the policy can be surrendered before 15years.The value of surrender would be given after deducting 2% as a penalty for premature withdrawal.

• Loan Facility – This policy give a benefit of a loan up to 75% of the value of the investment after 3 years of policy completion.

• Payment to the Nominee – In the case of death of the policyholder, the nominee gets the full investment amount.

• The option of Free-look period – Like any other insurance policy, this policy also offers for a Free-look period.

Service Tax Exemption in Varishta Pension Bima Yojana 

 According to the last year Budget 2015 there is a Service Tax exemption given to the policyholders on the investments made. However, people who have already invested in this plan prior to April 2015 will not enjoy this tax exemption would feel neglected as the returns which they get would be lowered because of the implication of service tax. Before service tax used to be at the rate of 3.09% on the invested amount because of which the implication is on the guaranteed rate of return gets reduced by almost 0.27%.

Drawbacks of Varishta Pension Bima Yojana 

1.   In this policy, the maximum pension amount is Rs 5000 which after the maturity of 15 years does not suffice the basic needs of the investor.

2.   The ceiling limit of this policy included the whole family because of which the maximum pension amount cannot be higher than Rs 5000.

3.   The tax-ability of the pension lowers the returns and gets the pension to 8.1% to 8.44%.

4.    Liquidity is also one of the drawbacks in this scheme as the money gets locked in for a period of 15 years with premature withdrawal charges of 2%.

In my opinion, it is wise to invest in this plan if a person who retires is not looking for higher returns and who falls in the low tax bracket of 10%.