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What is a Pension Plan: Meaning and Importance

Pension plans, also known as retirement plans help an individual to secure his/her future. It is a process in which an individual invests some of his income towards retirement benefits. It helps an individual to safeguard his/her post-retirement life and also lets an individual live financially independently.

Importance of Pension Plan

Pension plans help an individual to get a fixed and regular income after getting retired. The amount of pension depends on the amount invested i.e. more the amount, the more the pension. Also, they are liable to get tax benefits under section 80C to the extent of ₹150,000. Section 80C, 80CCC, 10(10D), and 80CCD are the various sections that allow exemption under the Income Tax Act, of 1961. Some companies allow you to withdraw the funds in case of an emergency or shortage. When a person retires, he/she will face a decrease in income, but in that case, pension plans help to be a regular source of income.

This will help to maintain the same lifestyle and cope with other expenses too. Additionally, there are other features/advantages you may receive on your Pension Plan and that depends on the brand you’re tying up with & what it brings to your table when it’s about selecting the best plan that takes care of you & your family. As per the acceptability among the people of India, the most dominating plans that are available from big brands could be considered for Aditya Birla Sun Life Insurance- Monthly Income Plan

Eligibility of Pension Plan

The eligibility criteria for a Pension/Retirement Plan varies from company to company & depends upon the offering that a company has for its customers. However, you don’t need to worry that you would be required to meet some strict guidelines when you look forward to opting for such investments. To avail of such plans, a user must have an idea of his/her requirement that binds his interest in these investments & the amount which he/she wants to invest to protect his future earnings.

Being a generic criterion, the age of the respondent defines that if any such investment can be made or not.  Your age defines how best these investments can yield you returns and this directly depends upon how long your money gets invested in a Pension plan. In major cases, people older than 60+ years are not being advised to go for Pension plans because of the tenure of the policy.

Policy Period

You can select the time when you want to start getting a pension. Some pension plans keep the vesting age at a minimum of 40-50 years. Also, it is flexible up to 70 years of age. A few pension companies also allow it to be at 90 years of age.

If you start investing in pension plans at the age of 25 and continue it for more than 25 years, then the accumulation period will be around 25 years. Some of the companies also allow partial or full withdrawals during accumulation periods.

Plan Selection

Before investing in pension plans, one must keep a few points in mind. First of all, check the reviews and ratings of the insurance company. There are some renowned Insurance companies like Aditya Birla Sun Life Insurance which is trusted by millions of users and holds strong credibility as a brand in India as a country. It’s always recommended to compare various policies and schemes and select the one which is the most beneficial. Most importantly, check if, in the case of the death of the insurer, the amount can be handed over to the nominee or not.

You should have proper research on the claim settlement percentage of the companies you look for and you can take a reference of Aditya Birla Sun Life Insurance for this. There are traditional pension plans available that invest some of the amount of premium in government securities and bonds, thus resulting in lower returns. So, you can go for investing in ULIP policies that yield higher returns. ULIP investing also charges some amount in the form of fund management, allocation charges, etc., so do check about these before investing.

How to Buy Pension Plans?

To buy pension plans, various documents are required to be submitted. They are as follows:

  • Age proof: It requires you to submit any of the prescribed documents – Birth Certificate/ Driving License/ Passport/ 10th or 12th mark sheet/ Voter ID.
  • Identity proof: Passport/PAN card/ Driving License/ Aadhar Card.
  • Address proof: Telephone Bill/ Electricity Bill/ Ration card/ Driving License.
  • Income Proof: This proof should mention the annual income of the person.
  • Medical tests: You need to pass medical tests as some companies do this to make sure the person does not suffer from any major health problems.
Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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