3 best pension plans in India

You may be in the thick of your career today, but eventually, when you retire, you’re going to need a reliable source of income to meet your financial needs. Here’s where pension schemes can be of immense help.

Pension schemes ensure that you get a steady flow of income at periodic intervals. And the good news is that there are several pension schemes in India that you can choose from to secure your life after retirement.

Let’s take a look at some of the best pension plans in India.

‍ 1. National Pension System (NPS)

Launched in 2004, the National Pension System is a trusted old pension scheme in India that is backed by the Indian government. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Under this system, you need to contribute to your NPS account regularly during your working years.

Then, once you retire, you will have a sizable corpus saved up as your retirement fund. A portion of this corpus must be set aside and converted to annuity, so you can receive regular pension payments.

Eligibility:

If you want to open an NPS account, you need to meet the following eligibility criteria —

• You should be a citizen of India (either resident or non-resident)
• You should be aged between 18 and 65 years as on the date of submission of your NPS application

Key features of the NPS:

NPS is a voluntary scheme where you can contribute varying amounts to your account each financial year. When you enrol in this pension scheme, you can open two types of accounts, namely Tier I and Tier II. The former is mandatory, while the latter is optional.

The money that you contribute to this scheme during your working years can be invested in the following asset classes —

• Equity or E : A high return-high risk fund that invests mainly in equity
• Corporate Debt or C: A medium return-medium risk fund that invests mainly in fixed income instruments
• Government Securities or G: A low return-low risk fund that invests solely in Government Securities
• Alternative Investment Funds or A: A fund that invests in alternative instruments like CMBS, MBS, REITS, AIFs and InvITs

You can choose between two investment choices, namely the Auto choice and the Active choice . In the Active choice, you can design your own investment portfolio with the asset classes listed above. In the Auto choice, your money will automatically be invested across the asset classes E, C and G based on your age and your risk appetite, as follows —

• Aggressive: Maximum equity exposure is 75% up to the age of 35
• Moderate: Maximum equity exposure is 50% up to the age of 35
• Conservative: Maximum equity exposure is 25% up to the age of 35

When you attain the age of 60 (called superannuation), you can exit the pension scheme and start receiving your benefits. At superannuation, you should set aside at least 40% of your corpus to purchase an annuity that will provide monthly pension. If your total accumulated pension corpus is less than or equal to Rs. 5 lakh, you can opt for 100% lump sum withdrawal instead.

‍ Tax implications of the NPS:

The investments you make into your Tier I account under this pension scheme are eligible for deduction from your total income under two different sections of the Income Tax Act, 1961 —

• Section 80CCE: Deduction up to Rs. 1.5 lakhs
• Section 80CCD(1B): An additional deduction up to Rs. 50,000

Apart from the above benefits, the amount that you use to purchase your annuity at the time of superannuation is fully tax-free. However, the pension income that you receive will be liable to income tax.

To learn how to invest in the NPS, read on here .

2. Atal Pension Yojana

The Atal Pension Yojana was launched in 2015, making it a relatively new pension scheme in India. Its primary aim is to give Indians the benefit of social security in the retirement years. Like all social welfare schemes, this one is also primarily targeted towards people in the underprivileged sections of the society. That said, private sector employees who are not entitled to any pension benefits can also enrol in this scheme.

Here too, like in the case of the NPS, you make regular contributions to your APY account. Then, once you attain the age of 60, you will start receiving pension payouts depending on the contributions you made to your corpus.

Eligibility:

You are eligible for the Atal Pension Yojana if you meet the following criteria —

• You should be a citizen of India
• You should be aged between 18 and 40 years of age
• You should have a valid mobile number
• You should have a bank account linked with your Aadhaar

Key features of the Atal Pension Yojana:

• Under this scheme, you need to make regular contributions to your APY account on a monthly, quarterly or half-yearly basis.

• Based on the amount you contribute, you will receive a pension of Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000 or Rs. 5,000 when you attain the age of 60.

• You can increase the amount you contribute to your account if you wish to.

• If you default on your payments, a nominal penalty will be levied.

Tax implications of the Atal Pension Yojana:

Contributions made to the Atal Pension Yojana are eligible for the same tax benefits as NPS investments. So, here’s how this pension scheme helps you save tax.

• Section 80CCE: Deduction up to Rs. 1.5 lakhs
• Section 80CCD(1B): An additional deduction up to Rs. 50,000

3. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

One of the many new pension schemes currently available in India, the PMVVY is an initiative that offers both insurance and pension benefits to the subscriber. This scheme is valid only until March 31, 2023, so if you think this may be the right scheme for you, make sure you apply for this scheme before the due date.

Under this pension scheme, you need to pay a lump sum amount, known as the purchase price. Based on this amount, you will receive a pension payout periodically throughout the policy term of 10 years.

Eligibility:

The eligibility criteria for this pension scheme is very simple. Anyone who has completed the age of 60 can enrol in the scheme.

Key features of the PMVYY:

• At the end of the policy term of 10 years, the purchase price along with the last pension instalment will be paid out to you.

• In case the pensioner passes away during the 10-year period, the beneficiary will receive the purchase price.

• You can opt to receive the pension on a monthly, quarterly, half-yearly or annual basis.

• After the completion of 3 policy years, you can avail a loan up to 75% of the purchase price you paid.
  

• The minimum and the maximum purchase price as well as the minimum and the maximum pension amounts vary based on the mode chosen, as shown below.

Tax implications of the PMVYY:

Unlike the NPS and the APY, the Pradhan Mantri Vaya Vandana Yojana is not a tax-saving scheme. So, there are no tax benefits on the purchase price you pay. Also, the pension you receive will be taxable under the Income Tax Act, 1961.

Summing it up

So, to sum it up, there are different pension schemes in India, each with different kinds of benefits. You can look up what your options are and assess which scheme suits your needs perfectly. You can even opt for two or more pension schemes if you wish to, so you can set up multiple sources of pension income for your post-retirement life.

Frequently Asked Questions ‍ ‍

1. Which is the best pension plan in India?

The best pension plan for you depends on your age and your financial situation, among other things. For instance, if you are young and have several working years ahead of you, you can opt for the NPS. On the other hand, if you want a safer pension option, the Atal Pension Yojana may be a good fit. And for older people who are at the age of 60, the Pradhan Mantri Vaya Vandana Yojana can help.

‍ 2. What are the types of pension schemes?

Based on the criteria chosen, there may be different types of pension schemes. For instance, you have schemes offered by your employer and schemes offered by the government. Then, there are immediate annuity schemes where the pension payouts start immediately, and deferred annuity schemes, where the pension payouts are postponed to a later point in time.

3. Which fund is best for pension?

Here are the top 3 pension funds of March 2023

• SBI Pension Funds Pvt. Ltd.
• LIC Pension Fund Ltd.
• UTI Retirement Solutions Ltd.

4. What are the 3 types of pension plans?

a. National Pension System (NPS)

b. Atal Pension Yojana

c. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

5. What is the safest retirement fund?

Debt funds are considered to be one of the safest options for retirement funds. Debt retirement funds invest in government funds and low-risk securities, making them reliable retirement funds in most cases.