With the retirement period approaching, financial stability becomes the main concern. This requires an investment that will ensure a regular income flow to provide financial security & mental peace. A guaranteed pension plan is a type of pension plan that offers fixed & guaranteed income throughout life post-retirement, irrespective of the market conditions.
A guaranteed pension plan ensures a regular stream of income post-retirement, which is an outcome of the amount invested by you when you were earning. Under this plan, both the employers & employees are required to contribute a certain amount while they are employed. The amount to be contributed depends upon certain factors, like age, salary, number of years of service, etc. The amount contributed will be the deciding factor in determining the amount of future pension payouts. It allows an option to decide the age from when the benefits are to be received, i.e. vesting age. This plan offers guaranteed returns on the amount invested, along with the death benefits to the beneficiaries in case of the unfortunate & sudden demise of the policyholder at any time during the policy tenure.
Features & Benefits of Guaranteed Pension Plan
Provided are the features & benefits of a guaranteed pension plan:
- Death Benefit
A guaranteed death benefit will be paid to the beneficiaries of the policyholder; this corpus includes the premium paid plus the interest amount.
- Guaranteed Additions
Some insurance provider companies offer an additional percentage of the sum assured, which is guaranteed.
- Vesting Addition
It is an addition to the corpus amount, which is basically a percentage of the sum assured that would be payable as a lump sum amount during the vesting period.
- Premium Payment Term & Policy Term
Most of the plans come with an option to pay the premium amount during a term of 5, 7, or 10 years, along with a policy tenure ranging between 10 & 20 years. One can select the policy tenure according to the investment objectives & financial requirements.
- Income Age
Choose a vesting age, i.e., the age from which you will start receiving pension, which normally ranges between 55 & 65 years. A pension calculator can be used to ascertain the amount of income that will be received at the age mentioned.
- Surrender Value
It is advisable to continue keeping a policy for a longer duration to get maximum benefits out of it, though there is always an option to surrender it. The policy can be surrendered once the surrender value has been acquired, like in the case of a regular pay plan, surrender value can be achieved once the period of 1 year has been completed.
- Tax Benefit
Get a tax deduction u/s 80C towards the premium amount paid. Also, the return amount received is also exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
- Annuity
A regular income will be provided under guaranteed pension plans via annuity payments. The annuity payments, hence, offer financial security & reliability throughout the retirement period. Annuity comes in two types, i.e., single or joint annuity plans.
Under a single annuity plan, the annuity amount will be paid to the policyholder till the policyholder survives. In case of a joint annuity plan, the annuity amount will be paid to the secondary annuitant after the death of the primary annuitant, till the time the former survives.
- Top Ups
Many plans come with an option to increase the corpus amount of retirement by increasing the premium amount, hence retirement income also.
- Lapsation
If the premium amount is not paid till the grace period, & has not acquired the surrender value, the policy will lapse in this case. This means if you fail to make a payment & enough value has not been accumulated, the policy will lapse,& nothing will be received.
- Grace Period
After the due date, a certain number of days is provided as an extension period for which the policy remains active, which is called the grace period.
In cases of quarterly, semi-annual, or annual premium frequency, the grace period is provided for 30 days & in case of monthly premium frequency, the grace period is for 15 days.
- Paid Up Value
If you stop paying the premium amount once the surrender value has been acquired, the policy will be paid up once the grace period ends.
How Does a Guaranteed Plan Work?
Let us know how a guaranteed pension plan works:
Step 1:Initially, choose the vesting age, i.e. the age when apolicyholder will start receiving the pension benefits.
Step 2:Decide the premium amount & the frequency of payment according to the needs.
Step 3:Once the policyholder retires, the vesting amount will be paid, which includes the sum assured, vesting additions, & accrued guaranteed additions.
Step 4:The vesting benefit amount will be paid either regularly or in a lump sum, as decided while purchasing the plan.
Step 5:If the policyholder dies during the policy tenure, their beneficiaries will get the death benefit, which includes the total of all premiums paid, including the compound interest at a definite rate of interest.
Steps to Buy a Guaranteed Pension Plan
Provided are the steps to buy a guaranteed pension plan:
Step 1: Look for the available plans &underst& their features, benefits, criteria, etc.
Step 2: To assess the present financial position, review the income, liabilities, assets, & expenses. This helps determine the contribution amount.
Step 3: You can also seek professional advice to underst& the available plans & analyse which plan best suits your financial objectives, risk acceptance, & investment horizon.
Step 4: If the plan has been offered by the employer, review the documents as provided by the employer to have a better understanding of the plan.
Step 5: Compare the different pension plans available on the basis of fees, options available, flexibility, reputation of insurance provider, etc.
Step 6: Fill out the application form accurately.
Step 7:Decide with the amount to be contributed & its frequency.
Step 8:Review the plan & its performance to ensure a secure retirement period.
Conclusion
The best retirement plan is considered to offer financial security & mental peace. Hence, start investing early to enjoy in later years, hence creating a secure future.
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