IN THE UNIT LINKED POLICIES, INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

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Retirement plans are life insurance products designed to act as investment plans to allocate a part of your savings to accumulate over a period and provide financial security after retirement.

 

Retirement pension plans help you invest your earnings over the years and create a fund that you can withdraw as a whole or in parts during your retirement years. Further, with dual benefits of protection with investment, these plans are ideal for covering your financial needs in the golden years of your life. Given the high cost of living and rising inflation, retirement planning has become more necessary.



What are Retirement Plans or Pension Plans?

Retirement plans or pension plans are a specific type of insurance policies that help you live a comfortable retired life. These plans provide protection and also act as investment policies that help you accumulate a corpus to meet your post-retirement needs such as medical expenses, living costs, etc.


These plans invest your earnings over the years and create a fund, which you use a lump sum or in parts during retirement. With adequate investment and proper planning, you can easily plan your golden years and secure your future with a steady flow of income even after retirement.

 

 

Why Do You Need A Retirement Plan?

 

We tend to invest our hard-earned money in meeting our day-to-day needs so much so that we pay little attention to securing a comfortable and prosperous life for ourselves in our later years.

 

Most of us have demanding jobs and even demanding lifestyles. In the daily hustle-bustle of our stressful lives, do we even give a thought to life after retirement? But we owe it to ourselves to take a deep breath and think about the future too. What would be the point of working so hard if we are not able to enjoy the fruits of labour in our retired life? Apart from lifestyle, we have responsibilities towards our families that may not go away with retirement.

 

To ensure that your post-retirement life is smooth and peaceful and your family is still well looked after, planning for retirement now is very important. Basis your current age, income, lifestyle and life goals, you can choose an investment amount and plan for your retirement.

Do you believe in Income after Retirement?

 

Retirement from professional life should not mean that you stop getting a regular income. Retirement plans allow you to allocate a part of your savings and let them grow over a period of time. You can then opt to get regular pay-outs after you retire.

 

I’m Too Young to Plan My Retirement! Why Now?

 

When you’re young, the idea of retirement hardly comes to your mind. The most prevalent thought is that ‘Retirement is so far away!’ ‘Why would I need to save for it right now?’

Fewer Responsibilities
Fewer Responsibilities
Even though your income may not be a lot when you’re younger, you also have fewer responsibilities such as a house loan, a child’s education etc., and these responsibilities just keep on growing with age. Hence, saving for retirement becomes easier early in your professional life.
Power of Compounding
Power of Compounding
The biggest advantage of kick-starting your retirement planning is the power of compounding, which provides the foundation for time value for money. Even if you invest a small amount for several years consistently, it will grow into a large corpus for your retirement.
Saving Little Early Than Saving a Lot Later
Saving Little Early Than Saving a Lot Later
Between saving small amounts early in life or saving big chunks of your income close to your retirement age, which one would you prefer? Saving a little early does seem like the easier and more sensible option, doesn’t it? With big expenses and a lifestyle to maintain, it would be harder to save large amounts of money when you’re middle-aged or close to retirement.
Tax Benefits
Tax Benefits³
Most retirement plans give you a tax benefit on both the investment amount and the maturity amount. You may invest in pension plans, guaranteed returns plans or market-linked plans, all of these have different provisions for tax benefits.
Long Retired Life
Long Retired Life
On average, a working Indian professional would retire around 60 years of age. Given that you lead a healthy life and considering the increased life expectancy, your retired life could span up to 40 years! How do you possibly imagine saving for a long tenure of 40 years in just a couple of years before your retirement? Starting in your twenties is the only practical solution to save for a long retired life.
Fewer Responsibilities
Fewer Responsibilities
Even though your income may not be a lot when you’re younger, you also have fewer responsibilities such as a house loan, a child’s education etc., and these responsibilities just keep on growing with age. Hence, saving for retirement becomes easier early in your professional life.
Power of Compounding
Power of Compounding
The biggest advantage of kick-starting your retirement planning is the power of compounding, which provides the foundation for time value for money. Even if you invest a small amount for several years consistently, it will grow into a large corpus for your retirement.
Saving Little Early Than Saving a Lot Later
Saving Little Early Than Saving a Lot Later
Between saving small amounts early in life or saving big chunks of your income close to your retirement age, which one would you prefer? Saving a little early does seem like the easier and more sensible option, doesn’t it? With big expenses and a lifestyle to maintain, it would be harder to save large amounts of money when you’re middle-aged or close to retirement.
Tax Benefits
Tax Benefits³
Most retirement plans give you a tax benefit on both the investment amount and the maturity amount. You may invest in pension plans, guaranteed returns plans or market-linked plans, all of these have different provisions for tax benefits.
Long Retired Life
Long Retired Life
On average, a working Indian professional would retire around 60 years of age. Given that you lead a healthy life and considering the increased life expectancy, your retired life could span up to 40 years! How do you possibly imagine saving for a long tenure of 40 years in just a couple of years before your retirement? Starting in your twenties is the only practical solution to save for a long retired life.
 

Features and Benefits of Retirement Plans

 

You should start planning for your retirement from a young age so that you are financially secure in the non-working years of your life.
Here are the topmost features and benefits of retirement plans:

 

  • Annuity option: Retirement plans or pension plans generally come in two types – immediate and deferred annuity. In an immediate annuity start, the insurer starts paying the money back immediately right after receiving the lump sum premium. In a deferred annuity, the insurer receives your payment and promises to pay you a regular income or a lump sum, in the future, as per your preference. You can choose the period for which you wish to receive the income. The most common type of deferred annuity retirement plans comprises of ULIPs (United Linked Insurance Plans) that invest a part of your money in the market while also offering you a secure life cover. Different retirement plans give your different annuity options. You can choose one that best matches your needs and as per the premiums that fit your budget.

  • Sum assured: Each retirement plan has a defined sum assured, which is a pre-determined amount offered to the insurer during the policy tenure. This sum is given as a death or maturity benefit under this plan. Each insurance company follows a different approach to calculate the sum assured.

  • Vesting age: Vesting age is the age when you begin to receive your pension payment. You can choose to get these payments monthly or as per your preferred frequency. Most insurers keep the minimum vesting age as 45 or 50, whereas some insurance plans can go up to 90 years.

  • Accumulation period: You can choose to invest in the policy as a lump sum or through regular periodic payments. Your funds are accumulated over a long tenure, as per your preference, to create a substantial financial corpus for your future. 

  • Payment tenure: This refers to the period during which you start receiving payments from your retirement plan. In most cases, the accumulation and payment period is different, whereas some plans allow you to take partial or full withdrawal in the accumulation period.

  • Surrender value: This is the amount the insurer will pay in case you surrender your plan before its maturity, provided you have paid the minimum premiums as specified. If you surrender your plan, you lose out on the benefits, including the life insurance cover.

 

 

 

Why choose Retirement Plans offered by Edelweiss Tokio ?

Here a few reasons why you should choose retirement plans by Edelweiss Tokio:

 

  • Lifetime financial assurance: Edelweiss Tokio offers different retirement plans such as deferred annuity plans, Employee’s Provident Fund (EPF), Public Provident Fund (PPF), National Pension Scheme (NPS) that also give attractive returns, allowing you to accumulate a strong corpus for your future. 

  • Choose when to retire: If you start investing at an early age, you will benefit from the power of compounding. This will allow you to build a strong sum within a considerable time. This will help you choose when you wish to retire without worrying about your financial security.

  • Flexible payments: Edelweiss Tokio allows you to choose your premium payment mode and frequency as per your preference. You can either pay premiums as a lump sum throughout the policy tenure or a fixed period. You can also choose if you wish to make the payments yearly, half-yearly, quarterly or monthly.

  • Regular income: With retirement plans from Edelweiss Tokio, you can choose how to receive income. You can get a lump sum amount or get income on a yearly, half-yearly, quarterly or monthly basis throughout the retirement tenure.

 

 

Choose your retirement plan online

 

 

How to calculate the return of a pension or retirement plan?

You should plan for your retirement, and accordingly, generate a retirement corpus. However, the plan you select must offer adequate returns for this purpose. To calculate the return of your pension scheme, you can use an online pension calculator that will only need basic information like your savings, current financial liabilities, monthly expenses, etc.

 

 

 

How to use a retirement planning calculator?

 

Retirement planning is important for a secured life. You can use the below steps to precisely know the amount you will need for a happy retired life.

  • Step 1: Visit the retirement planning calculator online.

  • Step 2: Fill in the details such as your current age, when you want to retire, expected returns, monthly savings, monthly expenses and rate of inflation.

  • Step 3: Click on ‘Calculate’.
 

After entering all the details, you will get the sum you need to live a comfortable retired life. Or, you can use the calculator given below:

 

 

Types of retirement plans or pension plans

 
 

Immediate annuity: 

 These types of annuity start paying you income immediately after you purchase the policy and pay the lump sum.

  • Annuity certain: In this type of annuity, a specific amount is paid via a series of payments over a defined period, as per your preference.

  • Life annuity: In such an annuity, you get to pay premiums for a defined duration but get income for your lifetime. In case of your unfortunate demise, your spouse will get the pension.

  • Deferred Annuity Plans: A deferred annuity is a long-term investment in which you invest a sum of money, then receive payments several years down the line after the initial sum has accrued interest. In a deferred annuity plan, there are two phases: the accumulation phase and the income phase. At the end of the accumulation phase, you can withdraw 1/3rd of the corpus and buy an annuity plan with the remaining 2/3rd of the corpus. You can claim tax benefits under Section 80CCC for investment in an annuity. However, the pensions are taxed.
 
 

THERE ARE 2 TYPES OF DEFERRED ANNUITY PLANS:

  • Traditional Retirement Plans: The premiums paid towards these plans are mostly invested in debt instruments like government securities. These are best suited for individuals who are low risk-takers.

  • Unit Linked Insurance Plans: A ULIP is a life insurance plan with the additional feature of investing your money in the market for future financial goals such a retirement. This means that you get the dual benefit of protecting your family as well as retirement planning.
    A ULIP also provides tax benefits as the premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan is also tax exempted under Section 10(10D) of the Income Tax Act, 1961, if the annual premiums are less than ₹2.5 lakhs or if the policy is purchased prior to February 1, 2021.
    If the policy is purchased on or after February 1, 2021, and the total annual premium exceeds ₹2.5 lakhs, then the ULIP maturity benefits will be taxed as ‘capital gains’ and taxed accordingly.

  • Employee’s Provident Fund (EPF): EPF is available to all salaried employees, subject to the rules laid down by EPFO. In this case, the employer and employee contribute a percentage of the employee’s salary to the Employee’s Provident Fund.

  • Public Provident Fund (PPF): PPF is a popular long-term investment option that offers capital preservation and attractive interest rates. A minimum of ₹500 to a maximum of ₹1,50,000 can be invested each financial year.

  • National Pension Scheme (NPS): Contributions to NPS can be made from the young age of 18. NPS offers investors: active choice and auto choice. In active choice, 50% of the contribution is invested in equity, while the rest is in government and corporate bonds. In auto choice, investments are made in a mix of equity, corporate and government bonds, depending on your age. In an NPS, you can withdraw 60% of your NPS funds at retirement, while the 40% must be used to purchase an annuity.

 

How much do I need to save for retirement? 

 

The amount you need to save for retirement depends on your financial needs during retirement and the amount you need to maintain your standard of living as well as take of your medical needs and any other expenses that might occur during retirement. You can use our retirement calculator online, or the quick calculator provided on this page to know the exact amount you will need to save for a happy retirement.

 

 

 

Who should invest in retirement and pension plans?

Retirement and pension plans are ideal for the following people:

 

  • People who wish to maintain their current standard of living even during retirement.

  • People who want to build a corpus to cover their potentially high medical costs in the future.

  • People who want their spouse or other family members to stay financially independent in their absence.
 
 


Retirement planning goals

A critical part of retirement planning is to begin early in life. A failproof retirement plan allows you to start saving way before retirement. The amount one needs for a secure retirement depends on person-to-person. However, experts specify certain parameters that will help you save for retirement adequately.Here is an example that can help you understand how much one needs to save for retirement:

 

Mr Rajesh Nayyar is 30 years old and is married. Mr Rajesh works in a multinational private firm as a senior manager and earns ₹80,000. His wife is dependent on him for financial support. Mr Rajesh wishes to retire at the age of 60.

 

His monthly expenses total ₹35,000, including the insurance premium and other investments. He also has an emergency corpus for urgent needs and is financially stable.

 

By the time Mr Rajesh is 60 years, his monthly expenses will be ₹2.66 lakhs, assuming a 7% inflation rate. To meet these future expenses and maintain a secure life after retirement, Mr Rajesh will need a monthly saving of ₹27,000 in the present.

 

 

 


Five tips for retirement planning

Retirement is the golden period of your life. You can live the life of your dreams, but only if you plan during the working years of your life. To ensure you create a failproof retirement plan, follow these five tips:

  • Start saving for retirement now: During retirement, you will not have a reliable source of income. However, to ensure your retirement is financially safe, you should start investing in a feasible retirement plan as early in life as possible. When you invest at a young age, you benefit from the power of compounding for a longer period. This helps you accumulate a large sum to fulfil future needs. 

  • Accommodate your retirement needs: When planning for retirement, have a futuristic approach. Think of your retirement needs and financial assistance required in the future and plan likewise. For example, your medical expenses will rise with time. So, it is good to invest in a secure health insurance plan well in time. Moreover, pay close attention to which city you will live in post-retirement, retirement lifestyle and plans, etc.

  • Be prepared for financial emergencies: Most people only have one source of income. However, in case of financial or medical emergencies, it is beneficial to have a retirement corpus to fall back, especially during retirement. The sum should be enough to sustain your future financial emergencies.

  • Explore your options and make an informed decision: When it comes to choosing your retirement plan, always make an informed decision after conducting a comprehensive analysis of all the available plans. It is also good to have a secure insurance plan in place in case you have dependents. So, it is best if you choose a plan that offers insurance cover and investment support. Moreover, buy an insurance plan at a young age because it comes at much lower premiums and offers relatively higher coverage as compared to a plan bought later in life.

  • Diversify your investments: Diversification is important to create a failproof retirement plan. You can choose to invest some of your funds in secure investments like insurance while directing the rest of your savings in market-linked securities such as equities, bonds, etc. The market-based investment can be made as per your risk preference and retirement goal. An optimally diversified retirement portfolio minimises risk and potentially maximises returns.


Eligibility for retirement plans or pension plans in India

Each pension plan has a different eligibility criterion depending on:

 

  • Minimum and maximum entry age: All pension plans have a minimum and maximum entry age. Usually, the minimum age of entry is 30, and the maximum entry age is 75.

  • Minimum and maximum vesting age: Generally, the minimum vesting age is for pension plans is 45 years, and the maximum age is 80 years. However, the limit varies from company to company.

  • Policy tenure: Each pension plan has a defined tenure, which is usually between 10 years and 30 years.

  • Annual premium amount: All pension plans have a minimum annual premium limit. However, there is no maximum premium restriction.

  • Premium payment term: Generally, pension plans require you to pay the premium for the same period as that of the chosen policy term. Some plans also allow for lump-sum premium payment.
 
 

Why ULIPs Make Good Retirement Plans?

Flexibility

ULIPs let you choose the premium amount, as per your requirements. They also give you the option of selecting funds as per your choice. Many ULIPs also offer the possibility of increasing your premiums during your premium paying term.

Liquidity

No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account when you are in need of urgent funds.

Tax Benefit³ u/s 80c

Premiums paid are deductible from taxable income under Section 80C. The interest earned and maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Tax Benefit³ u/s 80c

Premiums paid are deductible from taxable income under Section 80C. The interest earned and maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Systematic Savings

ULIPs give you the benefit of putting aside a chunk of your income and save it for future use in a systematic way.

Wealth Accumulation

ULIPs not only let you save your earnings, but also help in growing wealth for retirement by allocating it to market-linked funds.

 

How to Save Tax³ with Retirement Plans?

 

Apart from securing your family’s financial future and your own future income, a Retirement Plan also offers tax benefits under section 80CCC.

Let us look at the tax benefits offered by different types of retirement plans:

 

  • Immediate Annuity - While the interest you get is taxed as ordinary income, the principal amount is exempt from taxes. However, once you receive the principal amount in full, the payments will be fully taxable. The good thing about this is that the income tax rate will be based on the income earned at the time. If you withdraw the money after retirement, the rate will be relatively low.

  • Deferred Annuity - There are two phases in a deferred annuity plan: Accumulation Phase and Income Phase. In the case of the deferred annuity plan, your income grows tax-free during the Accumulation Phase, which means that you won’t have to pay any taxes on the money that accumulates during the time of premium payment.

  • ULIP - The premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan is also tax exempted under Section 10(10D) of the Income Tax Act, 1961.
 
 
 

Factors to consider while buying retirement or pension plans

 

When investing in a pension plan, be careful of these factors:

 

  • Monthly expenses: Your pension plan must be adequate to cover your monthly expenses in the future.

  • Inflation: The corpus accumulated by the pension plan must be sufficient to combat inflation in the long run.

  • Life expectancy: Your pension plan should ensure that you remain financially independent throughout your life and not outlive your savings.

  • Medical expenses: Your pension plan should provide enough sum to meet your medical expenses in the future.

  • Outstanding loans: Your pension plan must be sufficiently pay off your outstanding loans and still provide for your future income.
 
 

Best time to invest in a pension scheme

The best time to invest in a pension scheme is now. As per experts, it is good to invest in a pension scheme early in life to encash on the power of compounding. This will allow you to get higher returns from your policy upon maturity. So, the ideal time to invest in a pension scheme as soon as you get your first paycheque. You can start small and gradually increase your investment as you earn better in life.

 

 

How do I buy a pension plan?

Start now

The right time to begin pension planning is as soon as you start earning. With the right investment plan, you can get a high rate of return because of a longer accumulation period.

Diversify your portfolio

You should choose a retirement plan as per your risk tolerance. If you are a risk-averse investor, you can opt for market-linked plans. However, for retirement planning, you should diversify your portfolio to include traditional and safer investments, along with ULIPs, equity funds, and other securities, to minimise risk yet maximise returns.

Match your requirements

While the ideal age of retirement is 60 years, you can choose to retire as per your preference even earlier or later. However, for this, select a plan that best matches your needs in terms of risk appetite, tenure, vesting age, returns, etc.

Compare Plans and Expenses before Buying

Don’t just compare plans in terms of returns, also factor in the expenses and charges that come with retirement plans. Pick a plan that is economical and viable on all fronts.

Supplement the Traditional Schemes

Traditional Retirement Schemes like PPF or EPF may be reliable and time-tested, but you can always think of supplementing your retirement plans such as ULIPs.


Documents required to buy a pension plan/retirement plan in India

Here are the most important documents required to buy a pension plan in India:

  • Proof of age including Birth Certificate/Passport/Driving Licence/Voter ID/High School Certificate

  • Identity proof including Aadhaar Card/Passport/Driving Licence/Voter ID/PAN card

  • Address proof including Aadhaar Card/Passport/Driving Licence/Ration Card/Electricity Bill/Telephone Bill

  • Income proof including Bank Statements/Salary Slip/Income Tax Returns (ITR)

  • Medical reports, in some cases

FAQs

Like teachers say, there are no silly questions

What are pension plans?

Pension plans or retirement plans allow you to save a part of your income and let it accumulate over a while to get a steady income during retirement. The main objective of pension plans is to become financially independent in the future and maintain your standard of living, especially when you do not have a regular source of income. Given the high cost of living, sharply rising medical costs and rising inflation, pension plans have become a critical need of life.

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How do pension plans or retirement plans work?

When you retire, you do not have a regular source of income to meet your day-to-day expenses. This can become a problem if you have not planned well for these non-working years of your life. However, with a pension plan, you can get a reliable income flow even during the retired years of your life. In a pension plan, you invest a regular sum over time or pay a lump sum to accumulate a large corpus of funds for your future. When you retire, you get regular payments from your amassed sum to meet your retirement needs and expenses.

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What are unit-linked retirement plans or pension ULIP plans?

Unit-linked retirement plan or Pension ULIP plans are market-linked pension products offered by life insurance companies. They are suitable for individuals looking for a long-term retirement plan that doubles up as an investment.

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I already have a provident fund account. Do I still need a retirement pension plan?

Yes, a retirement plan acts as additional financial security to secure your retirement needs. The growth of inflation has been at a rapid rate, so your PF account might not be sufficient to cover your complete expenses in the future.

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What are the benefits of pension plans / retirement plans?

Pension plans are a wise investment for your future financial security because they offer the following benefits:

  • Pension plans offer a guaranteed income regularly during the non-working years of your life. This helps you maintain a regular flow of income during retirement.
  • Most pension plans come with a default insurance cover that can protect you and your family against financial uncertainties.
  • Pension plans in India enjoy tax exemptions as per their nature.
  • Pension plans are a much safer investment.

Pension plans allow you to enhance your life cover through add-ons like disability due to accident, critical illness, etc.

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What are the top features of pension plans / retirement plans?

Here are some of the most vital features of pension plans:

  • Annuity: Pension plans in the form of annuities offer a regular income during retirement or a lump sum payment, as per your choice.
  • Vesting age: All pension plans ask you to specify a vesting age – the age at which you will start receiving pension payments.
  • Accumulation period: The accumulation period is the tenure during which you have to pay premiums towards your policy.
  • Payment tenure: This refers to the period during which you will receive the pension after your retirement.
  • Surrender value: This is the sum you will receive if you surrender your plan before the maturity of the policy.
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What is the right time to buy a retirement plan?

With increasing costs of lifestyle, medicines, and healthcare, the amount required for ensuring a financially independent retirement becomes quite huge. Retirement planning becomes a crucial part of the earning years. Starting early on the journey will help you build a significant corpus (lump sum amount) for meeting your future needs.

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How to calculate the retirement fund/corpus?

Retirement planning can be summarised as save and invest as much as you can. Remember that planning for the future is a mixture of both fiscal and investment prudence. Using a retirement calculator is an easy way to decide on the retirement fund.

Calculating the pension fund using a retirement calculator is beneficial for several reasons:

· It helps you calculate how much you need to save each month for retiring with a large sum at the end of one’s professional career.

· A retirement benefits calculator will also help you determine the precise investment opportunities which you must take advantage of.

· Compare the various retirement options and plans that most competent financial organisations provide. Nowadays, even listed entities have their own retirement planning sections.

· It helps you identify the various retirement planning strategies which exist and helps you review and compare them too.

· If you have any high-value plans post-retirement, our calculator will help you save accordingly for such exigencies and planned spending sessions.

· Lastly, an online retirement calculator is useful when you are short on time, and you need to take decisions on such important aspects as future investment options.

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Does a retirement plan provide tax benefits?

Along with future security and insurance protection, investing in a retirement pension plan also qualifies for some tax benefits under Section 80CCC. Following are the tax benefits provided by the pension plan-

·  An immediate annuity is a guaranteed pension plan with tax benefit on the premium payments. All the premium payments under this plan are fully taxable once you have received the principal amount in full.

·  The tax benefit of a deferred annuity is that it lets your income grow tax-free during the Accumulation Phase. This means you will not have to pay any taxes on the money that accumulates during the time of premium payment.

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Does a retirement plan provide death benefits?

Some retirement plan provides flexible death benefits along with pay-out options. Immediate annuity plan and easy pension plan by Edelweiss Tokio offers death and survival benefit.

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Does pension end after the policyholder's death?

No, retirement or pension plan does not end after the policyholder's death. Depending upon the type of pension plan selected, either the spouse or a chosen nominee is entitled to the pension after the policy holder's death.

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What is participating and a non-participating pension plan?

A participating plan enables the policyholder to share the profits of the insurance company in the form of bonuses or dividends. In a non-participating plan, the profits are not shared, and no dividends are paid to the policyholder. Both these types of plans provide guaranteed life cover.

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Can a person have multiple pension plans?

Yes. A person can have multiple pension plans with private banks and other commercial pension plan policy providers.

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0 - Provided the premium paying term is more than or equal to 10 years.

1 - This is applicable only if all due premiums are paid and the policy is inforce.

3 - As per provisions of Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.

The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.

 

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