What are Pension plans?

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Pension plans are the favorite for many people as it allow getting a fixed amount of money after retirement just like receiving salary every month.

Pension plans are basically an extension of endowment plans where on maturity, instead of paying you maturity amount it gets converted in to pension fund and based on the amount in the fund you will get pension till you survives and on death nominee would receive the fund.

A pension plan on the vesting provides with a option to take 1/3rd of amount from entire fund. For eg. In a pension policy of 25 year; on 25th year that is (vesting year) total amount in the policy is 5, 00,000 then one can withdraw 1/3rd amount from it and rest is converted to annuity and based on annuity amount once will get the pension, however one can also opt for not withdrawing 1/3rd amount and in such cases pension is based on original Rs. 5, 00,000.

Like endowment plans if person dies in between then SA is paid to the nominee and policy gets terminated. There are many pension plans available which do not provides risk cover and in such cases only premium paid is paid to nominee.

Now a day’s pension plan comes in two flavors; Unit linked pension plan (ULIP pension plans) and the other one is traditional pension plan.

It entirely depends on your choice as you want to take a risk with your pension money or not. With ULIP pension plan you can create a large corpus even by investing small amount while for traditional plans; to build large pension fund you should make considerably higher investment. However most important part is to start early which helps in creating good pension fund even if you are not investing much.

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Sarah Miller said...

This article contains very informative information. Thank you for taking the time to write such kind of content. I will add this knowledge to the ones I got from http://www.pensioncompensation.net/.

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