Retirement Planning : Introduction
Retirement is that phase of our lives when we face absence of a source of income. However, the daily lifestyle expenses continue and some expenses, like medical ones, also increase due to ailing health. As such, having a retirement plan in place is necessary to fund our days of retirement. This is the reason why experts suggest on building a retirement fund which would come in handy in providing a source of income post retirement. The retirement planning process should involve creation of such an instrument which provides a regular and continuous series of incomes over our retired life till the date of death so that there is no income ceasing age.
Annuity Plans or Pension Plans offered by life insurance companies provide an ideal solution in this context. These plans promise to provide a series of regular incomes post retirement. Such incomes continue till the day the policyholder dies and thus are a never-ending source of income.
When we talk about annuity or pension plans, we cannot ignore the variety of such pension plans available in the market today. Each plan has its own unique brand of benefit and promises something additional. Though the basic concept of all pension plans is the same, each has some or the other feature which differentiates it from the rest of the plans available in the market. In this scenario, choosing the best pension plan becomes difficult if one does not know how to compare retirement plans.
Before embarking on a journey to understand how to compare best pension plans, let us understand the concept of pension plans in brief.
A pension plan, also known as an annuity plan, promises annuity payouts till the lifetime of the annuitant. These plans require a corpus from which the annuity payouts are made. Such a corpus can be accumulated through regular premium payments (as in the case of Deferred Annuity Plans) or can be created by paying a lump sum single premium when buying the plan which is called the Purchase Price (as in the case of Immediate Annuity Plans). These plans have no life insurance cover except in the case of Deferred Annuity Plans where a death benefit is paid if the insured dies during the premium accumulation phase. When annuity payouts are made, death of the annuitant results in cessation of the annuity payouts unless otherwise stated.
This was the basic understanding of a pension plan and now we move to the next concept of finding the best pension plan in India. Comparing retirement insurance quotes or sifting through the new retirement schemes requires some basic knowledge of the parameters against which such comparisons should be made. To help you glide smoothly over the retirement plan comparison process, here are some pointers. These pointers are the parameters against which you should judge the available pension plans:
For Deferred Annuity Plans
Deferred Annuity Plans have two phases – the accumulation phase wherein the plan is bought and the premiums are paid and the annuity phase wherein annuity payouts are made from the corpus accumulated. Thus, by accumulating the corpus through small payments over the working life, an individual can create an ideal corpus which can be used for receiving annuity payouts throughout the lifetime.Some deferred annuity plans also allow policyholders to transfer their annuity phase to another pension plan to avail annuities. This feature, thus necessitates a comparison among the available retirement plans to adjudge the best among them. So, here are the pointers:
a) The type of plan – deferred pension plans come in two plan variants. One is the traditional plan whereas the other is the popular Unit Linked Insurance Plan (ULIP). Before you buy the plan, you must find out your requirement. If you want a good growth in your corpus, a Unit Linked Plan would be a better choice and if you want a secured corpus, a traditional plan should be considered.
b) The plan tenure available – retirement planning is a long-term process. To accumulate a sizeable corpus, one should always plan over a longer tenure. Thus, while selecting the pension plan, a plan with the highest possible tenure should be given preference over a plan with a shorter tenure.
c) The annuity payout options – almost all available pension plans allow for commutation of pension up to a limit of 1/3rd part of the corpus. This means that the commuted part can be withdrawn in cash while the remaining part, 2/3rd of the corpus, should be used to avail annuity benefits. Other than this universal feature, some plans allow extension of the deferment period, facility of transferring the annuity payouts to another company, etc. These payout options should be matched with your requirements and a plan with flexible options should be selected.
d) Plan Additions – these plans might provide added benefits in the form of loyalty additions, guaranteed additions, bonus declarations, etc. These additions increase the size of the corpus and a plan promising such additions is the best bet.
e) Mode of purchase – pension plans can be bought online as well as offline. While the offline mode involves the agent or broker, online plans are sold directly by the insurance company. Both these modes of purchase have their pros and cons which depend on the policyholder’s perception. So, see whether your preferred mode of purchase is available with the pension plan you seek to invest in.
For Immediate Annuity Plans
Immediate Annuity Plans are Single Premium Plans wherein the annuity payouts start immediately post the payment of the single premium. This single premium is called the Purchase Price. For this type of retirement plan comparison, the following pointers are helpful –
a) The types of annuity options – immediate annuity plans pay annuity through different annuity payout options. There is also the feature of a single life annuity and a joint life annuity. While the single life annuity pays annuities till the lifetime of the annuitant, joint life annuities continue beyond the lifetime of the annuitant and are paid till the secondary annuitant is alive. Such secondary annuitant is usually the spouse and so a joint life annuity is beneficial for your spouse’s benefit too. There is also the option of getting the Purchase Price (which is the single premium paid for buying the plan) refunded if the annuitant and, in many cases, the secondary annuitant dies. Thus, the benefit variants available in immediate pension plans are many which require serious consideration. One should ideally opt for a plan which has varied annuity payout modes which would help you determine the best payout mode suited to your needs.
b) The annuity rate – the most important factor is the amount of annuity promised by the pension plan. Every insurer has different annuity rates even though the difference is a minor one. You would like to receive as high an annuity as possible and so it becomes very important to compare the different annuity rates of all available retirement plans.
c) Mode of purchase – as is in the case of Deferred Annuity Plans, Immediate Annuity Plans also come in the online and offline versions. While comparing the various plans, the purchasing mode should also be considered to be of your liking.
The comparison process
Nothing could be easier than the process of comparison available nowadays with the online trend becoming popular. To compare the best retirement plans, one has to simply log into our portal and we do the needful. Your basic contact details are required which enable us to contact you and ascertain your requirements. Based on the said requirements, the best solution is offered which is relevant to your requirements. So, you get the whole process completed and done through your home or office without the need to visit any of the company’s premises.
Why should you compare?
Would you like to settle on any pension plans when there are other better plans out there in the market? Or, would you settle on any pension plan without matching it to your requirements first? Buying an insurance plan requires comparison so that you have the satisfaction of knowing that your hard-earned money has been spent on something which would fulfill your requirement in the best possible way. This makes comparison necessary. When we compare between the different available plans, we not only compare best pension plans or retirement insurance quotes, we compare the whole package. The plan should have the best features in terms of the benefits provided and the premium rates should also be justified against the features. Thus, comparison of the various retirement plans becomes necessary. If you had the dilemma of lack of the required technical knowhow or you didn’t know how the comparison process should be undertaken, the above-mentioned parameters should be your answer. The comparison process too is easy and is mentioned above. So, start comparing and avail the best retirement plan that is available in the market today!