Pension plans are efficient retirement planning tools, which help accumulate a corpus for retirement. Some retirement plans like EPF require contribution from both the employee and the employer, whereas some other retirement plans like NPS, requires contribution to be made over a period of time. These plans provide a lump sum at maturity.
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See Also: What is a Pension Plan?
Rise in Life Expectancy: The average life expectancy in India has increased due to better medical facilities. Most of the cities are now equipped with hospitals that can treat patients who suffer from critical illnesses and require life saving surgeries. So, the average life expectancy in India is 69 years. Higher the life expectancy, higher would be the amount needed at retirement.
Lack of Social Security in India: Social security has taken a backseat in India. Unlike other countries, India does not provide any significant social security for disabled or retired people.
Rising Health Care Cost and Inflation: A rise in life expectancy is the direct result of improved and efficient healthcare facilities. Higher the life expectancy, higher would be the demand for better medical facilities. Demand causes a rise in the price of healthcare facilities. So, a retirement plan is a must as it counters the problem of soaring medical inflation and retirees require better medical treatment, which definitely costs more.
Regular Flow of Income: Retirement means no regular income. So, a retirement plan offers monthly pension which is a source of income for the retirees. A retirement plan ensures the retiree leads a stress free and comfortable retirement.
Tax benefits: Availing a pension plan during your service years, helps avail tax benefits under Section 80C of the Income Tax Act. Pension plans enjoy tax benefits under Section 80C of the income tax act.
See Also: Pension Plans for Retirement
Pension plans are important for the following reasons:
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Below mentioned are some of the most common types of pension plans in India. It’s important to know the different types of pension plans:
Immediate Annuity: An immediate annuity is an insurance product that provides the beneficiary regular monthly income after retirement in exchange for a lump sum amount, paid immediately. There are two types of immediate annuity plans i.e. fixed annuity plans and variable annuity plans (Fixed annuity offers fixed income each month and the income is independent of market conditions). Variable annuity plans offer income depending on the market conditions.
Deferred Annuity Plans: These plans accumulate an amount over a period of time. The pension starts once the tenure of such pension plans is over. Deferred annuity plans also offer tax benefits.
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