Business Standard
What is pension scheme?

pension scheme

About pension scheme

What is pension scheme?

A pension scheme is a long-term savings plan that helps people save money for the future and it is a tax-efficient way to save money during your working life.
 
Over a period of 40-50 years, a pension scheme ensures an adequate corpus to deal with rising medical bills and expenses and a higher cost of living, driven by the country's inflation.
 
The amount of money saved into a pension scheme account is referred to as ‘contributions’. A pension scheme allows us to invest regular payments or transfer a lump sum amount into a pension fund account for retirement planning. When the policyholder dies, the entire pension amount is paid to the nominee or legal heir of the deceased.
 
People invest money under a pension scheme plan so that the fund accumulates over a certain period of time. That's why, the earlier we create a pension plan, the more time our retirement scheme will get to grow and the bigger the pension amount will be in the long run.
 

Tax benefits

Unlike a regular savings account, money invested under a pension scheme earns tax advantages. Pension schemes for retirement planning qualify for tax deductions under Section 80CCC of the Income Tax (I-T) Act, 1961.
 
In fact, you can avail of tax deductions up to a certain amount to buy a new pension policy or to make payments towards the renewal of an existing policy providing a periodical annuity or pension.
 
Under pension schemes, a certain amount is paid at maturity, which is exempted from tax and the rest amount is used to purchase an annuity. Annuity earnings are added to the taxable income and taxed according to your income tax slab. Also, no TDS (Tax Deducted at Source) is deducted on annuities.
 

How much to pay?

The amount you and your employer pay for your pension scheme may vary depending on which type of pension scheme you choose. However, by law, you and your employer have to pay a minimum amount into your pension scheme. Under a pension scheme, both employees and employers contribute to the scheme, and the greater the contribution, the greater the corpus.
 

Benefits of pension schemes

With pension plans, there are some benefits as mentioned below:
 

Guaranteed income

Under the ambit of a pension scheme, you get a fixed amount of income for your retirement planning. However, there is also an option to provide income to your spouse in case of your death.
 

Death benefit

Pension schemes also provide a death benefit plan for the financial security of your family in your absence. The nominee will receive the sum assured or death benefit after your death. However, if the pension fund scheme is discontinued due to some reason, the already accumulated amount in the policy will be given to the beneficiary.
 

Flexible premium payment terms

Depending upon your financial goal, there is also the flexibility to select the premium payment term plan.
 
A nominee has three options to use the pension funds:
 
— Buy an immediate annuity plan with the entire proceeds
— Withdraw the entire death benefit
— Partially withdraw the proceeds and use the balance amount to buy an annuity plan

Latest Updates on pension scheme

Pension plan for unorganised sector sees only 5 mn subscribers in 5 years

3 min read Last Updated :May 02 2024 | 2:50 AM IST
Image
LS polls: Pension increase, Vizag as executive capital in YSRCP manifesto

4 min read Last Updated :Apr 27 2024 | 10:28 PM IST
Image
Atal Pension Yojana: How to avail of pension scheme for unorganised sector

3 min read Last Updated :Mar 28 2024 | 12:27 PM IST
Image
Modi govt's Atal Pension Yojana poorly designed, a paper tiger: Cong

2 min read Last Updated :Mar 26 2024 | 11:32 AM IST
Image
Long lock-in, but safe investment: What NPS can do for your financial goals

6 min read Last Updated :Mar 17 2024 | 9:41 PM IST
Image
Himachal Pradesh govt issues notification for granting pension to women

2 min read Last Updated :Mar 14 2024 | 10:33 AM IST
Image
Make your retirement portfolio last longer, withdraw funds conservatively

5 min read Last Updated :Mar 03 2024 | 10:07 PM IST
Image
Nagaland govt employees protest, demand restoration of old pension scheme

1 min read Last Updated :Feb 17 2024 | 6:58 AM IST
Image
EPFO releases guidelines for EPS members having multiple accounts

2 min read Last Updated :Jan 31 2024 | 11:49 PM IST
Image
Volume IconTMS Ep572: Old pension scheme, Tesla in India, markets this week, Houthis

2 min read Last Updated :Nov 30 2023 | 10:12 PM IST
Image
US pension fund's index switch: Indian equity mkts set for $3.6 bn bonanza

4 min read Last Updated :Nov 27 2023 | 9:48 PM IST
Image
RSS backed-Bharatiya Mazdoor Sangh asks govt to restore Old Pension Scheme

2 min read Last Updated :Nov 22 2023 | 2:22 PM IST
Image
Govt employees to hold Family March on Nov 8 for Old Pension Scheme in Maha

2 min read Last Updated :Oct 23 2023 | 1:36 PM IST
Image
Assembly polls: The age-old debate on OPS vs NPS is not retired hurt, yet

5 min read Last Updated :Oct 08 2023 | 10:47 PM IST
Image
OPS vs NPS: Why did government employees hold a rally at Ramlila Maidan?

4 min read Last Updated :Oct 02 2023 | 9:53 AM IST
Image
Table: Pension plans of various companies, terms and fees explained

1 min read Last Updated :Sep 28 2023 | 5:31 PM IST
Image
Only 3.62% of Rajasthan's workers registered to Centre's pension scheme

2 min read Last Updated :Sep 21 2023 | 4:48 PM IST
Image
Pension reform reversal

3 min read Last Updated :Sep 19 2023 | 10:03 PM IST
Image
States reverting to OPS poses significant fiscal risks: RBI paper

3 min read Last Updated :Sep 18 2023 | 11:36 PM IST
Image
Implementation of OPS will be done in 1st cabinet meeting: Bhupinder Hooda

2 min read Last Updated :Aug 21 2023 | 9:04 AM IST
Image