Understanding Pension Plans: How They Work and Their Benefits

Retirement and pension are closely associated. For many retirees, pensions represent a primary source of income. While pensions can be earned from work, especially in government jobs, planning for it yourself is crucial if your employer does not provide the option. 

Pension plans allow you to strategically plan for your retirement. Offered by life insurance companies, pension plans provide retirement-centric financial benefits, ensuring you remain financially independent throughout your life.

Let’s understand more about pension plans in India-

What is a pension plan?

A pension planis a type of life insurance product that provides you with financial security in retirement. It helps you save for future needs such as healthcare, housing, and more during your post-retirement years. Pension plans also offer life coverage, protecting your surviving family members in your absence. They are most commonly structured as annuity plans.  

How do pension plans work?

Pension plans allow you to invest a fixed sum of money, which grows over the years. At maturity, you can withdraw your money as regular income, similar to receiving a monthly salary. Pension plans can be purchased with a single lump sum payment or through regular instalments over a deferred period. These are known as immediate annuity and deferred annuity plans.