Retirement Pension and Annuity Plans

Retirement planning refers to a multi-step process of defining retirement income goals and the strategy required to achieve the said goals. It involves identifying income sources, assessing expenses, executing a savings strategy and managing overall risk. In general terms, retirement planning involves making financial strategies to save, invest and distribute money for your sustenance and survival during retirement.

Retirement is considered as the golden period of life. Hence, it is important to plan this time in a way that you are financially stable and do not outlive your savings. Kotak Life understands the need to maintain your financial independence even after retirement. To enable you to take care of yourselves, we offer two attractive retirement plans so that you ‘Live Life King Size’ even after retirement.

Why do You Need a Good Retirement Plan?

Retirement planning is not limited to assets and income. It includes a holistic evaluation of these, along with future costs, liabilities and overall life expectancy. Ideally, it is a life-long process, which can be started at any time. However, it is always best to plan your retirement years well and much in advance. Starting your retirement planning when young offers you more opportunities to grow your funds, absorb risk and ensure future security.

• Tackle impending medical emergencies: As you age, health problems only increase. This means you would be required to shell out more money towards medical expenses later in life. It is expected inflation in this space would rise by nearly 14-15% each year. So, your savings should also grow at the same rate to be able to provide for your medical expenses during retirement.
• Effectively combat inflation in the future: Inflation is a sad reality, and in a country like India, inflation is expected to cross the standard 5% estimate. This would imply that by the time you retire, your savings would be worth much less in comparison to the present times. A robust retirement plan will ensure you do not outlive your reserves and have a strong purchasing power even in retirement.
• Substitute the lack of state sponsorships: Unlike the UK and the U.S., there are no specific pension plans or other retirement plans India offered to retirees of the private sector. Hence, after retirement, you have to take charge. 

What are the Benefits of Retirement Planning?

Retirement planning is a crucial process to ensure you enjoy the non-working years of your life. For this purpose, you need to invest yourself in a reliable retirement plan so that you are secured for life. Here are some significant benefits of retirement planning:

• Peace of mind and well-preparedness: A well-planned retirement not only reduces your stress but also makes you more prepared for uncertainties and emergencies, including medical crises. It provides you with a sense of self-reliance and makes your golden years more relaxed.
• Assurance of savings and steady retirement income: Planning adequately for retirement ensures you have substantial savings to support your standard of living during a time when you do not have a steady source of income.
• Secure property and assets: Without a strong retirement plan, you would more be inclined towards selling off assets and properties to manage your expenses later. However, building a retirement fund will safeguard your assets and property, and allow you to pass it on as a legacy to your children.
• Effective transition from working to non-working mode: An in-depth retirement plan helps you transition smoothly from a working force to a non-working force. You would be in a more secure place and can move on in life easily.
• Reduction in taxes in later years of life: Retirement planning helps you reduce taxes that you would otherwise be liable to pay during retirement. A good retirement plan can also help you to minimise liabilities and taxes for the beneficiaries.
• Minimise costs with lower premiums at a young age: A retirement plan made in the younger years helps you to minimise costs. You would be likely to pay lower premiums when younger, you can take more risks in retirement investments, and thus, have better chances to save and grow funds.

What are Retirement Pension Plans?

Retirement pension plans are reliable financial future security solutions. Pension plans are similar to an investment plan, where you can accumulate a share of funds, allowing it to grow over a long period. The purpose of investing in a pension plan is to safeguard the future years of life and secure a regular income after retirement. Retirement pension plans provide you with financial independence, allowing you to live your life with pride even after retiring. A good retirement pension plan can help maintain your and your family’s living standard, as well as combat the rising inflation and the overall high cost of living.

You can choose to pay regular pension plan premiums or a lump sum payment, and allow your funds to grow significantly during the working years of life. These funds can be used to create a stable income during retirement. Among other pension plans in India, Kotak’s Premier Pension Plan, helps you accumulate adequate retirement wealth to live the golden years of your life. This retirement pension plan allows your funds to grow sufficiently and also offers assured benefits on death and vesting.

What are the Features and Benefits of Buying a Retirement Pension Plan?

A retirement pension plan is a very popular retirement investment plan tool. Some of its most significant features and benefits include:

Features of a retirement pension plan

• Guaranteed Additions to the Basic Sum Assured: Pension plans like Kotak Premier Pension Plan, offers guaranteed additions to investors in the first five policy years. The additions are calculated as a percentage of Basic Sum Assured. The sum is added to the pension plan at the end of year financial year and is payable either on vesting or on death, whichever is earlier.
• Earn bonus every year: Leading pension plans, such as Kotak Premier Pension Plan, provide a bonus starting from the sixth year of the policy. This will ensure your funds are not stagnant and grow over time.
• Assured benefits: Retirement pension plans offer assured retirement pension benefits. Kotak Premier Pension Plan offers you a minimum guaranteed benefit. This is payable either on death or on vesting and amounts to 105% of the Total Premiums paid till the time of death or vesting, whichever is earlier.

Benefits of a retirement pension plan

• Provide guaranteed monthly income: Pension plans, offer a fixed income in retirement in exchange of investments made today. Moreover, you can select a monthly income plan for a specific period or your whole life post-retirement.
• Allow you to choose asset classes to diversify funds: Best pension plans in India, like Kotak Premier Pension Plan, allow you to choose classes of assets, which will majorly form your portfolio.
• Facilitate encashing on the long-term investment benefits: Since retirement pension schemes are long-term, your funds can earn significant benefits. Retirement pension plans accumulate a strong corpus, allowing you a steady income in retirement.
• Offer flexibility in payment of premiums: Retirement plans India allow you to either invest a lump sum and get immediate annuity receipts or select a deferred plan that allows the funds to accumulate more interest until the payments begin. Moreover, the plans also have high vesting age, usually 40 to 70 years.
• Provide death benefits and riders like a life insurance cover: Some pension plans offer a death benefit, where a lump sum is paid to the family or the nominee. There are also optional riders like accidental death benefit and permanent disability benefit rider.
• Offer tax benefits allowing more savings: Retirement pension plans are eligible for tax deductions up to Rs. 1. 5lac under Section 80CCC and 10(10A) as per the Income Tax Act, 1961. 

What are the Eligibility Criteria for Investing in a Retirement Pension Plan?

Best pension plans in India have a similar type of eligibility requirements. Some basic eligibility criteria include:

• Minimum and maximum entry age limits: To be eligible for investing in retirement plans India, you should be at least 30 years old. However, you cannot invest in a pension plan if you are above 55 or 60 years, depending on the type of scheme.
• Minimum and Maximum Basic Sum Assured: You cannot invest less than Rs. 2 lacs in a retirement pension scheme. Alternatively, the upper limit is subject to underwriting.
• Minimum and Maximum vesting age: In most retirement pension plans, the vesting age is between 45-70 years.
• Policy term: The policy term varies per the chosen retirement pension scheme. Generally, the policy tenure ranges from 10-30 years.
• Premium payment term: In most cases, you are required to pay the premium only for the chosen policy period.
• Premium modal factor: Generally, there are three premium modal factors – yearly, half-yearly and monthly. The percentage varies for each.

What is the Best Time to Invest in a Retirement Pension Plan?

If you meet the eligibility age criteria for a retirement pension plan, then the best time for a retirement investment plan is now, implying as soon as possible. There are significant benefits of investing early on in retirement pension schemes, these include:

• Allowing them more time to grow through the power of compounding: The younger you start your retirement investment plan, the more your funds will grow because of the compounding of money. So, if you are 45 years old and you start investing Rs. 1.5 lacs in a pension plan, then by the time you turn 60 years, your savings would be Rs. 44 lacs or Rs. 31 lacs (assuming they grow at 8% and 4%, respectively). But if you would have saved at least 5 years earlier, you would be making Rs. 74 lacs or Rs. 46 lacs (if savings are compounded at 8% and 4%, respectively).
• Effectively beating rising inflation to protect future purchasing power: As per general phenomenon, inflation tends to rise. So, the later you start saving, the more you have to save for an adequate retirement. Moreover, the value of money will go down with time due to inflation, and your future purchasing power will suffer if your retirement investment plan starts late.
• Ease in paying future medical costs that are rising by the day: As per reports, medical costs rise 15-17% every year. This would mean you need more money to pay off medical expenses during retirement. Moreover, with rising age, medical costs tend to be heavy on the pocket. All this can eat up your retirement income plan if you do not save early on life to build an adequate corpus for the future.

What are the Documents Necessary to Buy a Retirement Pension Plan?

Below are the documents necessary to buy the best retirement plan:

• Age proof credentials like birth certificate, driving license, passport, high school certificate, etc.
• Identity proof such as Aadhaar card, passport, PAN card, driving license, etc.
• Address proof including passport, driving license, telephone bill, Aadhaar card, etc.
• Income proof like salary slip, bank account statements or Income Tax Returns (ITR).

In some cases, companies offering retirement pension schemes ask you to also provide recent medical reports before the purchase of the retirement investment plan.

Retirement Plans from Kotak Life

Kotak Life offers two retirement plans so that you are assured of a relaxed retired life. The assured returns and host of features guaranteed complete financial and mental well-being in your golden years.

Let us look at the two Kotak Life retirement plans:

• Kotak Premier Pension Plan:

This is a traditional participating pension plan that offers assured benefits on vesting or death of the policyholder. The basic features of the plan are:

• Avail a percentage of the basic sum assured as Guaranteed Additions in the first 5 policy years which will be payable either on vesting or on death (whichever is earlier).
• Bonuses will start accruing from the 6th policy year.
• Enjoy an assured benefit of 105% of the total premiums paid on death or vesting.
• Two riders to further boost your protection – Kotak Accidental Death Benefit Rider and Kotak Permanent Disability Benefit Rider.
• Kotak Assured Pension:

This is an Annuity plan that promises to pay a regular stream of income on regular basis:

• Flexibility to avail additional annuity payout through topup
• Higher Annuity rates for higher purchase price
• Issued annuity rates are guaranteed for lifetime
• Kotak Saral Pension:

This is an Annuity plan that gives you the assurance of regular stream of income throughout your lifetime:

• Issued Annuity rates are guaranteed for life time.
• Life Annuity with Return of 100% of purchase price

FAQs

• 1. What are Retirement Plans?

  Retirement plans are also known as pension plans. They are a type of life insurance plan, which are specifically created to fulfil your post-retirement needs. Typically, you would require such plans to provide you with a consistent stream of income, enabling you to meet living expenses and pay medical costs in retirement. In retirement plans, you would need to pay regular premiums during your working years to receive regular income post-retirement. Retirement pension plans offer you guaranteed income for life, future security of your children and several tax advantages.

• 2. How do Retirement Pension Plans Work?

  There will be a time when you would stop working and eventually retire to enjoy the bliss of those non-working days. However, this is also the time when you would be transitioning from a regular earner to a non-earner. And even though your income stream would dry up in retirement, you would be incurring living and medical expenses. In such cases, a pension plan for retirement provides you with the much-needed respite. You can get a standard income flow by paying a lump sum amount or by investing over a period of time. These premiums that you pay in the initial years of life tend to become the regular payments for your future, ensuring your adequate financial security.

  Some specific types of pension plans in India include:

  • Immediate annuity: In this type of retirement pension plan, you start receiving the pension immediately after purchase of the policy.
  • Deferred annuity: You accumulate wealth over a specific term by paying regular premiums and your pension begins once the tenure ends.
  • Annuity certain: In this form, you select the tenure in which you want to receive the pension payments.
  • Life annuity: You have entitled to a pension for your whole life. In case of death, the pension scheme amount is paid to the spouse or nominee.
  • Life cover pension: This is a dual-benefit programme where there is life insurance cover with the pension plan. In case of an unfortunate event, the lump sum is paid to your dependants or the nominee, as specified.
  • National Pension Scheme This pension plan in India is backed by the central government, where you can withdraw 60% of your pension scheme amount at retirement and 40% is used to buy an annuity.

• 3. What is the Difference Between a Retirement a TPlan and erm Plan?

  A term plan is different in nature from a retirement plan. Some of the major differences include:

  • A term plan is a pure and simple protection plan that guarantees payment of a definitive death benefit, in case of your demise in the specified term. A term plan does not include any saving or investment component. On the other hand, a retirement plan is a combination of an insurance plan and investment.
  • By investing in a retirement pension plan, you save money for the future, while allowing it to grow as you pay regular premiums. A term plan has no saving or investment option and can only provide adequate life cover at affordable rates and no savings for the future.
  • A term plan offers a guaranteed death benefit in case of your untimely demise. However, a retirement plan offers no death benefit but ensures a regular stream of income for you. Moreover, upon maturity of the pension scheme, you or the nominee (in case of the untimely demise of the insured) receive the corpus-built overtime.

  Overall, both retirement and term plans have their pros and cons. The final choice depends on your financial requirements. A term plan is more a protection plan than a policy, which can secure your future with regular income earnings.

• 4. Why Should I Invest in a Retirement Plan?

  As a prudent planner, you should plan your retirement years well in advance. This provides you with a sense of security and financial independence during the non-working phase of your life. Moreover, since your regular income stream would have dried up during retirement, it is important to opt for retirement investment plans that offer a continuous monthly earning. A retirement plan is the best option for such investments for the future.

  Here are some benefits that would justify why you should invest in a retirement plan:

  • You are guaranteed a specific amount of income on a regular basis even after you retire from work.
  • Regular earnings will help you pay for living expenses and medical costs during retirement
  • Most pension plans offer a life cover, which helps to protect you and your family in unforeseen situations and financial burdens.
  • Investing in retirement pension plans in India provide you with dual tax benefits. The premiums paid for the pension plans are exempt under Section 80CCC and 10(10A) of the Income Tax Act, 1961.
  • Pension plans are a no-risk investment option with stable future earnings
  • You can increase your pension scheme coverage by including riders such as accidental death benefit, permanent disability, critical illness, and other riders.

• 5. What is an Income Plan?

  An income plan, like Kotak Lifetime Income Plan, is a very effective retirement investment plan to earn income even while you are not working. An income plan is generally an immediate annuity non-linked, non-participatory life insurance plan. This type of retirement plan aims to provide you with a secure alternative source of earning during retirement to fulfil your needs and manage your standard of living.

  With an assured income plan, you can be sure to let go off all your financial worries for the retirement years. An income plan allows you to live a comfortable and financially independent life post-retirement. With income plans, like Kotak Lifetime Income Plan, you receive an assured pay throughout your life. In case of your absence or untimely demise, the income is given to the spouse or your nominee.

  Income plans by Kotak offer ensure your financial independence post-retirement. They also offer you a wide array of income options to best match your needs. Moreover, you can choose from a range of annuity payout frequencies – yearly, half-yearly, quarterly and monthly – in tune with your financial requirements.

• 6. What is a Pension Plan? 

  Also, known as retirement plans, pension plans secure a part of your savings over a long period to provide you financial security in the future. You can choose the get the pension scheme benefits in a lump sum or regularly. Typically, pension plans come to your rescue when your regular income dries up in retirement. The money from retirement pension plans can help you be financially independent in non-working years of your life. You can use the earnings from your retirement pension plan to manage uncertainties, financial crunch situations, medical emergencies, etc. during post-retirement.

  In a retirement pension plan, you would be required to contribute a specific sum regularly until retirement. The accumulated amount is then given back to you either as a lump sum payment at once or across a period at regular intervals after retirement. Best pension plans in India, like Kotak Premier Pension Plan, help you create a substantial retirement corpus, allowing you to spend your golden years worry-free and comfortably. Moreover, the pension plan by Kotak has assured benefits on death and vesting. There is also an opportunity to earn a bonus and get guaranteed additions.

• 7. I have Invested in a Provident Fund. Should I Still Buy a Retirement Plan?

  Even if you have invested in a provident fund (PF), it is advisable to invest in a retirement plan. Existing provident fund plans are not enough for your future financial security because they do not account for inflation adequately. The returns offered on these social security investments are not suitable if you consider your income requirements during retirement. To state, assuming the long-term inflation stands at 6%, the provident funds offer merely 8.5% return rate, which accounts for only 2.5% net of inflation. This 2.5% is insufficient to meet the future expenses of your post-retirement life.

  People mostly consider investing in provident funds to tax-saving purposes and not to generate a source of retirement income. This is evident from statistics as well. Despite the country having a high savings rate, only 10% of the working people in India have retirement investments in provident funds. Most employees in the organised sector contribute toward provident fund only to save on taxes, as opposed to retirement planning. So, if you wish for a financially secure retirement, it is advisable to invest in a retirement plan even if you have invested in a provident fund. Retirement pension plans support you financially when your income starts to recede. Pension schemes allow you to live with pride and maintain a good standard of living, making fewer compromises and more memories. Moreover, by allowing your funds to grow and accumulate over time, you can acquire inflation-adjusted wealth in the long run with channelised income cash flows.

• 8. Why do I Need to Include a Retirement Pension Plan in my Long-Term Financial Plan?

  A retirement pension plan is one of the most reliable assets for your post-retirement financial security. So, if you are framing your financial plan for the future, it is important to incorporate investment in a retirement plan. Some benefits offered by best pension plans in India include:

  • Long-term savings for a secured future: Retirement pension plans in India allow you to accumulate significant corpus so that you can generate a secure flow of cash for your post-retirement life.
  • Regular income in retirement to meet living expenses: Pension plans in India provide you with a guaranteed income for the non-working years of your life. This income can be used to meet everyday living expenses, medical costs, fulfil retirement dreams like travelling, etc.
  • Insurance cover along with regular income for unforeseen situations: Retirement pension plans in India also offer insurance cover, which can help provide financial security to the family in worst times.
  • Pension plans are risk-free and secure investments: Retirement plans India are classified as risk-free investments because of two reasons. Firstly, pension schemes are backed by employers, which guarantees the security of your money even when the market falls. Secondly, the Pension Benefit Guaranty Corporation assures the safety of your pension, even if the company goes bankrupt.
  • Tax advantages on pension premiums paid and maturity amount received: As per the Income Tax Act, 1961, the pension plans premiums are exempt from taxes up to Rs. 1.5 lacs under Section 80C. Moreover, under Section 10(10 A), the amount received on maturity of the policy is also exempt from taxes.
  • Improve liquidity in demanding situations: A retirement pension plan offers you money when you need it. The best retirement plans in India allow you to withdraw a significant chunk of your pension plan to meet your financial emergencies. These could include children’s marriage, buying a house, etc. and could occur before the actual retirement. However, it is important to check pension scheme documents to know details.
  • Flexibility to choose plans according to your financial needs: When buying retirement plans India, you are offered the flexibility to choose to pay a lump sum or regular premiums. Moreover, you can also select how you want to receive the income from your pension scheme. Such as, if you want an income stream to start immediately, then an immediate annuity would be ideal. And if you wish to defer receipts until a time in the future, deferred annuities would be advisable.

• 9. Can I Invest in Multiple Retirement Plans at a Time?

  Yes, you can invest in multiple retirement plans at a time. You could choose to make retirement investment in different private banks and commercial pension scheme providers. However, if you opt to invest in the National Pension Scheme or other government-sponsored retirement pension plan, then you cannot have more than one retirement plan at a time. In this case, you could re-invest your money when the pension plan matures.

• 10. Can I Avail Tax Benefits with a Retirement Plan?

  Yes, by investing in a retirement plan, you can avail tax benefits. As per the Income Tax Act, 1961, the pension scheme premiums paid up to a limit of Rs. 1.5 lacs are exempt from taxes under Section 80CCC. Additionally, the retirement plan payouts received at the time of maturity are completely tax-free under Section 10(10 A) of the Income Tax Act. However, applicable taxes are charged as per the prevailing rates, and these tax laws are subject to changes from time-to-time.

• 11. What Happens to the Retirement Plan after the Policyholder’s Death?

  In case, the policyholder dies while the retirement plan is active, the pension plan continues to live its term. According to the type of retirement pension plan, either the spouse or the nominee of the policyholder receives the pension benefits after the demise of the policyholder. So, a retirement plan not only serves to provide you with financial security for retirement but also supports your family and children in your absence.