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All About Retirement Schemes in India

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All About Retirement Schemes in India

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Investing in a suitable retirement pension scheme is vital. It could mean many things during retirement: A world tour, a dream holiday, pursuing your long-lost hobbies or just spending ‘me time' at home. With age, your life requirements often undergo change, such as an increased need for medical assistance, more help at home etc. So, a stable retirement plan is a must-have; after all, retirement should not mean the end of the road — it should be the beginning of an open highway. 

The primary aim of retirement pension schemes is to provide a continuous flow of income even after employment ends. A retirement pension scheme provides you with much-needed financial, medical, and living assistance. In India, the government offers a wide range of pension plans for Indians. Both private and government sector employees can enrol in these retirement plans. Depending on your eligibility and requirements, you may pick one from the available options. 

Why Choose A Retirement Scheme in India? 

Why is a retirement pension scheme so important to consider? What changes does it bring in your post-employment life, and how does it benefit you and your family? For an answer to all these questions, refer to the pointers below-

Regular Income

A steady flow of income is maintained and regulates your day-to-day living expenses. Even though your employment ends, you require a source of income to achieve post-retirement financial goals and basics like medical expenses, travel, etc. 

Life Cover

A retirement scheme is not only limited to providing regular income but also provides life cover. If the pensioner suddenly passes away, this scheme pays a lump sum to the family left behind.

Tax Benefits

Tax benefits are something that every individual looks forward to. And when you are investing in a retirement pension plan, the government of India provides you tax deductions under 80CCC of the IT Act. So, you get dual benefits with one investment. 

No Dependencies

Having a proper pension plan means an independent after-employment life. You do not have to depend financially on anyone in your family. Investing earlier creates maximum benefit, ultimately leading to better income after retirement. 

Popular Retirement Schemes for Indians

Taking into consideration the changing needs and the importance of post-retirement plans, the government of India has launched various pension plans. Before investing in any retirement pension scheme, explore your options: 

National Pension Scheme (NPS)

PFRDA (Pension Fund and Development Authority of India) introduced the National Pension Scheme in 2004 to let any Indian between the ages of 18 and 65 plan for retirement. It includes two types of account-

  • Tier 1 Account: It is the primary account that can be opened with a minimum investment of ₹500 and then ₹6000/year (or ₹500/month).
  • Tier 2 Account: To open a Tier 2 account, a Tier 1 account is mandatory. A Tier 2 account can be opened with a minimum investment of ₹1000, 

After maturity, 40% of the amount invested is used to purchase an annuity that brings regular income, and the pensioner can withdraw 60%. In an emergency, users can partially withdraw up to 25% of the invested amount. However, the account must be a minimum of three years old. 

Atal Pension Yojana (APY)

People working in the unorganised sector or private companies can look forward to this one ideal retirement plan by the Indian government. The scheme was launched in 2015 by the government, and employees above the age of 18 can get enrolled. The plan matures at the age of 60. 

The central government contributes 50% of the investment made by the individual. That means, if you accumulate ₹5 lakh in Atal Pension Yojana, the government will contribute ₹2.5 lakh to it to make it ₹7.5 lakh. You also get the tax deduction benefits with this investment. 

Indira Gandhi National Old Age Pension Scheme (IGNOAPS)

The Rural Development Ministry launched the Indira Gandhi National Old Age Pension Scheme in 2007. This retirement pension plan aims to provide social security to poor households and save them from any financial problems. Old age people, disabled people, and widows can apply for IGNOAPS.

The most striking feature of this pension plan is you have to make no contributions to receive the pension. Senior citizens between 60 and 79 years receive ₹200 per month and those above 80 years of age receive ₹500 per month. 

Things To Consider While Investing In A Retirement Pension Scheme

Are you wondering which scheme is best for retirement or are confused about how to get an ideal retirement pension plan? Well, do not stress out and read the tips given below. Keep these tips in mind, and you may end up finding a reliable pension plan for yourself. 

Invest Early

The key to enjoying maximum benefits post-retirement is to start investing early. Most retirement pension plans let you invest from the age of 18. So, as soon as you realise, start investing. The longer you invest, the higher the pension income will be after the plan's maturity. 

Diversified Portfolio

Sticking to only one retirement pension plan may not be highly beneficial. For instance, do not limit your pension investment to only EPF or PPF or some government pension plans. Check out the maturity benefit of plans, and depending on your investment power, diversify your portfolio as much as you can. Having various sources means higher income. 

High Sum Assured

Go for a plan that offers a high sum assured because this is the end goal of an investment. A low premium may not actually benefit as the sum assured may not be as high. 

Maturity Age

The age at which the retirement plan matures is also necessary to consider. Some may mature before 60 years, and some may allow investment after the 40s. So, make sure the age of entering and exiting the plan suits your post-employment requirements. 

Death Benefits

When you start to invest in a retirement pension plan, look for the one that provides a death benefit. For instance, you may go for a plan that provides 100% reimbursement of the premium paid in case the pensioner dies before the plan matures. 

Conclusion

Planning for your retirement life is a crucial decision and an essential investment. Indulge in some research before deciding on a retirement pension scheme that suits you the best. You may not find everything in one single plan, so it’s advisable to go for a diverse portfolio. Analyse your current expenses and decide an amount you can regularly invest in a pension scheme. Start early to gain maximum benefits. 

FAQs

Which scheme is best for retirement?

The government offers various retirement pension schemes depending on your post-retirement financial goals, investment capability, etc. — you can choose a plan. Ensure you go through the details of each plan properly before investing.

What are the 3 types of retirement?

The three types of retirements are-

Early Retirement

When an employee gets retirement before the retirement age, it is referred to as Early Retirement. 

Voluntary Retirement

When an employee demands voluntary retirement after providing services of a minimum of 10 years. 

Deferred Retirement 

Deferred retirement can be opted if you only have at least 10 years of service. 

What is a voluntary retirement scheme?

A voluntary retirement scheme is a retirement method used by several companies and government institutions. Under VRS, an employee who has completed 10 years of service or is above 40 years of age can apply for retirement.

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