Retirement Plans in India

A Retirement Plan is basically a financial assurance that a person will continue to earn a reasonable income and lead a comfortable life, even when he retires from work. The trend of opting for Retirement Plans is becoming increasingly popular in India. In fact, many people from the government services sector in India, who have the choice of secure pensions after retiring, are still opting for private Retirement Plans in order to increase their future financial security.
There are several reasons for the popularity of Retirement Plans in India nowadays (1).

Cultural and Social Paradigm Shift

The joint family system, especially in urban India, is gradually crumbling. Youngsters are opting for nuclear families, and parents are increasingly under pressure to provide for their own income after retirement. Secondly, the older generation itself is more independent minded, and prefers to have an independent income in their old age, instead of depending upon their children for financial survival.

Rising Costs of Living

In the olden days, people could survive on a minimum expense after retirement. But in the present economic conditions, the costs of living have gone up very high. The costs of medical care are high in the older age, and insurance cannot cover the entire cost of care in most cases. Particularly, the outpatient care is not covered in most policies. Therefore, the retirees are increasingly looking at creating a sufficient post-retirement income for a reasonable survival after retirement.

Longer span of life

The average span of life in India has gone up because of improved health care facilities and medical advancements. As a result, the length of post-retirement life has gone up. This is encouraging more and more people to plan for a consistent income after retirement that can support them throughout their retired life.

TYPES OF RETIREMENT PLANS

There are many different retirement plans and schemes in India, both in the private and public sectors. But essentially, the retirement plans can be classified into 4 types (2).

Life Annuity Plans: These plans guarantee a person a specific amount of income till the time the person continues to live. After the person’s death, the originally invested amount is refunded to the beneficiary’s nominee.

Guaranteed Period Annuity: In these plans, the person is guaranteed a specific income for a minimum number of years. If the person dies before that period, the nominees will continue to receive that income till the period is completed. If the person outlives that period, he or she can continue to receive the income till his death.

Annuity Certain: Under this retirement plan, a fixed amount of income is paid for a fixed number of years. The payments will stop at the end of the period, even if the retiree is still living at the expiry of this period.

Deferred Annuity: Under this plan, the person first saves from his income to create a corpus fund for a number of years. Thereafter, that fund is used for investing in a specific retirement plan that gives an assured income for the retiree till he lives.

ICICI Pru LifeStage and ICICI Pru LifeTime Maxima are two key retirement plans that offer flexible income and insurance benefits to meet the retirement needs. Reliance Life Super Golden Years Term 10 Senior Citizen Plan is another very popular retirement which offers a flexible unit-linked retirement income, with an option to pay regular, single as well as top-up premiums (3).

It is recommended to get in touch with a good financial advisor to gain more awareness of the various Retirement Plan schemes in the market, and choose the one that suits one’s needs in the best possible way.

- Vikas Vij (views expressed in the article are that of the author)