Pension Scheme: Do You Need One? Yes!
Do pension schemes in India sound like dull, lifeless places full of bureaucracy, paperwork, and systems you don’t understand? Think again. I’m guessing that if you’re reading this, you understand the importance of a pension and have an opinion about pensions. However, you may have encountered many articles about pensions and still don’t really understand what a pension scheme is really for or why you need one.
My aim is to clear things up a little and guide you in deciding the best pension policy for yourself. A pension scheme is probably the least appreciated out of the four benefits that employees are entitled to (pensions, health cover, life cover, and income protection). However, it’s perhaps the most important. Why? Because it ensures that once you have stopped working, you don’t have to worry about money. No buts – no ifs – no worries – ever again!
Let’s take a look at why pension schemes are important for you.
What Is a Pension Plan?
A pension plan is the retirement amount, which an individual gets from their insurance companies on a regular basis or in the form of a lump sum. There are various types of such plans available in the country offered by various companies.
However, increased choices may confuse and person and make it difficult for individuals to choose the best pension policy. Through regular investments, it is possible to develop a sizable corpus, which on maturity gives a regular monthly income for taking care of your post-employment years.
The sum you gain is can be termed as either the annuity or pension. The money you get after retirement through pension plans helps you to maintain your standard of living by providing a regular source of income.
Importance of a Pension Scheme in Your Life
1. Inculcates Savings Habit
Pension schemes in India are long-term investments, typically with a tenure that lasts until you work. The earlier you start one, the better it is. You pay regular premiums and build a retirement corpus. The longer you stay invested in the plan, the bigger your corpus will be when you retire.
In addition to helping, you save for your golden years, pension plans help you inculcate fiscal discipline. You will get used to saving a small amount every month and learn how to manage your finances better.
You can either choose an immediate annuity plan or a deferred annuity plan. Immediate annuity plans give you a fixed income from the day you invest in them till death and deferred annuity plans pay you after a few years (the lock-in period).
2. Offers Compound Growth
If you’re in your twenties or early thirties, the thought of starting a pension plan may seem like something to be done far ahead in the future. But if you start investing in a pension today, you can build yourself a massive corpus for retirement.
A pension scheme in India allows you to build a corpus for your retirement by letting you invest regularly over an extended period of time. You know that the longer one stays invested, the more he/she is likely to gain.
This is because of compounding—a phenomenon where an investment gives a return which is then reinvested and gives its own return, and so on. A pension plan gives you the option to invest regularly and build a huge retirement corpus.
3. Flexible and Scalable
Pension schemes are an excellent way to ensure that you have enough financial resources once you retire. They are long-term investments and should be seen as such. There are many benefits to pension schemes, especially within the context of their flexibility and scalability.
First, pension plans are flexible. Based on your financial risk appetite, you can choose an investment theme ranging from aggressive to balanced to conservative. You can also switch between funds as your outlook towards risk changes.
This flexibility is important because pension schemes are long-term investments and personal, financial, and economic circumstances will certainly change over the period. Along with investment as a benefit, the core benefit of insurance remains, which will keep the family and dependent’s financial needs safe, in case of the demise of the life insured.
Second, pension schemes are scalable. You can invest any amount into these schemes (provided there is a minimum), up to 100% of your basic salary for that year. So, if you had a great year but want to save more for retirement, you’re able to do so with a pension scheme.
4. Financial Safeguard for Dependents
We’re all in the same boat: We want the best for our loved ones. It begins with a modest home, a well-stocked kitchen, and a family that’s well taken care of. But as we age, this list starts to grow. You want to see your kids through college.
You want to be able to afford good healthcare as you age. And most importantly, you want to make sure your spouse is financially independent—even when you’re not around anymore. But how can we do that?
Sure, you can plant money trees in your backyard or buy some stock in the next unicorn startup, but let’s be honest: Without being born into an extraordinarily wealthy family, it can be tough to ensure that your loved ones are taken care of once you’re gone.
Fortunately, if you have the best pension policy, you can do just that! By investing wisely during your working years and purchasing insurance for unexpected events (such as death), you can create a nest egg for yourself and your family.
And when you reach retirement age, there will be even more options—from monthly payments based on longevity to a fixed monthly income—that will allow you to continue making your financial goals a reality.
It is always better to plan for the future rather than simply hoping for the best. After all, putting money into a pension scheme in India has benefits for you and your family even if you don’t live to see it.
Pensions can offer various benefits like tax relief, employer contribution, and a way of saving for your retirement with the added security of having an income to last the rest of your life. This blog concludes with the message that you should start investing in a pension plan as early as possible in your life.