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Advisor’s Tip: How to Choose the Best Pension Plan for Retirement?

By Vikas Chandra Das
21 July 2022, 11:46 AM
how to choose the best pension plan for retirement

Retirement planning is a difficult financial responsibility that must be taken care of at the appropriate time. One of the major goals of retirement planning is to arrange a corpus such that you can lead an independent life after retirement and be financially prepared to face any kind of emergencies that may be wealth-wise or health-wise. 

After retirement, even though your income would dry up, your expenses would not. So, a regular source of income would be needed and this is provided by annuities. Retirement planning can be done by the purchase of best pension plans which are otherwise known as Retirement plans. One of the best choices for a pension plan can be a Unit Linked Pension plan. 

What are Unit Linked Pension Plans?

ULIP Unit Linked Pension Plans would help in creating a corpus that would fund your expenses after retirement. The fund created by these plans would help in the payment of annuities which would be your source of income after retirement.

The major benefits which can be obtained from the Unit Linked Pension Plans are

  1. The death benefit is paid to your nominee in the form of either lump sum or annuity payouts and is the highest amongst the fund value or the sum assured.
  2. On the maturity of the pension plan, you can have the option of receiving one-third of the fund value in the form of cash. This is known as the Commutation of pension. The remaining value is to be paid as annuity instalments. You can either be able to defer the annuity date or purchase a single premium deferred annuity plan with the fund value that is left.

Features of Unit Linked Pension Plans

  1. Switching – In case of a change of your investment strategy, you can change between the available funds. A specific number of switches are free during a policy year exceeding which charges might be imposed.
  2. Top-up – By top-ups you can invest an additional amount of premium into your pension plan. You can do so to increase the sum assured of your unit-linked pension plan.
  3. Partial Withdrawal – By partial withdrawal, you can withdraw a portion of your fund value after the first five years of your pension plan.
  4. Redirecting Premium – By this feature, you can redirect the subsequent premiums for further investment into another fund.

How do Unit Linked Pension Plans work?

  1. You would choose your sum assured policy tenure and pay the premium which you are interested to pay.
  2. The relevant charges would be deducted from the premium of the policy.
  3. The premium paid would be invested into a fund value which has been selected by you.
  4. The fund value would either increase or decrease based on the market performance and the premium that is paid.

However, there are traditional pension plans available in India as well. They are called Annuity or Pension Plans.

What is an Annuity?

In simple terms, an annuity can be said to be a fixed regular income that is paid to you throughout your life. A series of payments that are paid out at regular intervals from a corpus created is known as Annuity. A pension can be said to be a form of annuity which would be helpful in paying you a regular income.

Annuities are beneficial as they act as a regular income even after you retire. Annuities are promised for your lifetime and would take care of your expenses in your golden years.

Different Types of Annuity Plans in India

The two basic types of annuities available in India are 

1. Deferred Annuity Plans

In deferred annuities, you would have an accumulation phase during which investments can be made by you for the creation of a corpus. The accumulation period is chosen by you and you pay a particular amount over this duration. After the end of the accumulation tenure, your plan would vest or mature. By vesting of a plan, it would mean that the annuity period would begin. During the annuity phase, the accumulated lump sum would be used in the payment of the annuity pay-outs. You can even postpone your annuity payouts up to a particular date and this postponed duration is known as the Deferment period.

2. Immediate Annuity Plans

In the case of Immediate Annuity, your annuity pay-outs can start immediately without any waiting period. You would pay a lump sum amount to purchase the annuity and the annuity pay-outs would start from the following month, quarter, or year. The frequency for annuity would be chosen by you and your annuity pay-outs would be made as per the frequency chosen by you. 

In addition to these above-mentioned basic types of annuities, there are other types of annuities as well.

  1. Life Annuity In life annuity, annuity payouts would be given until your death. With your demise, the annuity payouts would also stop.
  2. Life Annuity with Return of Purchase Price – In this case, the annuity payments would be made till your death. After your death, the purchase price with which the annuity would be refunded back to your nominee.
  3. Annuity Certain – This is also known as Guaranteed Annuity and the annuity pay-outs are paid out for specific periods.  If you are alive even after the guaranteed period, then the annuity payment will continue for a lifetime. Even if you do not outlive the payout period, the annuity payouts would not stop and would continue until the guaranteed period.
  4. Increasing Annuity – In increasing annuity, the annuity payout keeps on increasing every year or in every frequency by a rate that is fixed. This fixed rate might be 5% or 10% and the rate of increase is either based on the simple rate of interest or compound rate of interest.
  5. Joint Life Annuity – In a joint-life annuity, coverage is provided to a married couple for the annuity payouts. The person purchasing the annuity is said to be the primary annuitant whereas the spouse would be considered as the secondary annuitant. In this case, annuity payouts would continue until the lifetime of the annuitant who survives last. If you are the primary annuitant, then the annuity payouts would be given to your spouse after your death. But, if your spouse predeceases you then the annuity payout would be paid till you are alive.
  6. Joint Life Annuity with Return of Purchase Price – Like the joint-life annuity, here the annuity payouts are paid until the lifetime of the last surviving annuitant. Moreover, when there is a demise of the last surviving annuitant the payout of the annuity stops, and the purchase price is returned to the nominee.

Which Annuity Would be the Best for You?

The suitability of an annuity for you depends on your life stage. Deferred annuity plans would be the best choice for you if you are young and your retirement is 10 to 20 years away. You can be able to save certain amounts every year and build up a corpus for your retirement. 

However, if you have already retired then immediate annuity plans would be the best choice for you. You can invest your savings in purchasing an immediate annuity plan and thus, obtain annuity payouts on a monthly, quarterly, half-yearly, or yearly basis. This annuity payout would happen throughout the lifetime thus, providing a steady source of income post-retirement.

You must understand the main concept of annuities, their suitability, and then choose a variant that would be suitable for your retirement planning.


So, you must analyse your financial needs before you decide to choose a particular pension plan. If you want to create a substantial corpus for a stress-free retired life then Unit Linked Pension plans are the best options available.

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