Features and Benefits of Pension Plans
The regular monthly income is the essence of maintaining lifestyle, whether you are working or not. During working life, it is comparatively easy to meet routine expenses from the current salary or income. However, the same is not true once you stop working. In such a case, the pension income provides you continuous flow of income throughout your lifespan.
When you subscribe to a pension scheme, you will get a deduction from the income under section 80CCD (1) and 80CCD(1B). The benefit is more for people under the higher tax bracket. Effectively, it reduces your present cash outflow. Moreover, your subscription amount is reduced indirectly.
There are many investment options to the investors like stocks, mutual funds, bank deposits and similar others. However, there is an involvement of risk to get the money back depending on prevailing market conditions. On the other hand, the pension schemes are regulated and approved by the government body. It ensures that senior citizens get the pension irrespective of market risks.
It is the age of an individual when he or she starts receiving the pension income. Earliest vesting age is 45 years for most of the pension plans. Many pension plans allow you to extend the vesting age upto 80 or 90 years. The key benefit to extend the vesting age is a higher pension at later age. Your accumulated fund gets more time to grow by the power of compounding.
The accumulation duration is nothing but the number of years between the first premium payment and vesting age. For example, if you start subscribing to a pension plan at the age of 25 years and the vesting age is 60 years, your pension plan’s accumulation duration is 35 years. This is the time during which a fund has a chance to accumulate and grow.
It is the period during which actual premium is paid. It could be same as accumulation duration or it could be different also. Many times, after paying period of certain years, the subscriber chooses to ‘defer’ the annuity to avail a higher pension at a later date. Hence, accumulation period increases, however the payment period is only upto last premium payment date. Usually, a longer payment period ensures a better pension amount at the cost of a lower premium amount.
In a very unlikely and undesirable event, you might want to discontinue with your pension plan prematurely. You might have paid the premium for a few years, however would not like to continue anymore. In such a case, you might be eligible to get the amount return, called surrender value. However, such a surrender value is substantially lower than the expected financial benefit of a regularly served pension plan. Unless unavoidable compulsions, the individual should not surrender his or her pension plan.