6 Benefits Of Investing In Pension Plans

6 Benefits of Investing In Pension Plans

1. Creates long-term savings

A pension plan can be bought years in advance before you actually retire. With such a long time to save, this ensures that your savings turn in to investments and then grow over the years. Ultimately these long term savings end up being your retirement kitty that you can use not just for your regular expenses post retirement, but also for pursuing other interests and hobbies.

2. Covers your beneficiaries

When you plan for your retirement, you also factor in the needs of your family members, especially those who could be dependent upon you even after your retirement. But what if you, the policyholder of a retirement policy, are not around anymore? The loss would impact the family emotionally as well as financially. When you opt for a pension plan, it protects the financial needs of your family even in your absence. In the case of the death of the policyholder, the beneficiaries are granted a death benefit. This death benefit can also be paid in regular instalments to the beneficiaries.

3. Combats the impacts of inflation

The money you have today would not have the same value after a year. Inflation causes the value of the money to go down, meaning you will be able to buy less for the same amount. Imagine what will happen to the money you are just saving today, after 20 or 30 years. Ideally, the best way to prevent the impact of inflation on your expenses is by investing the savings so that it generates inflation-beating returns.

4. Offers tax-saving benefits

Tax benefits can be a major source of saving for you. Pension plans also provide you with tax benefits. On investing in a pension plan, you can avail tax benefits not only during the accumulation phase, but also on the returns on investment. Under section 80CCC of the Income Tax Act, 1961, the premiums are eligible for tax deductions. Moreover, on reaching the vesting age, you can receive up to a third of retirement savings, which are tax-free under Section 10(10A). Tax benefits as per prevailing income tax laws shall apply. Please check with your tax consultant before investing.

5. Provides the benefits of power of compounding

Compounding occurs when your investments generate returns, and these returns further generate returns. While this works even when you are invested only for a few years, the actual wonders of compounding are visible over longer periods of time. For instance, Rs 1 lakh invested for a period of 5 years giving a 10% return would turn that amount to Rs 1.61 lakh. However, if you keep that amount invested for 25 years and the rate of return remains the same, the Rs 1 lakh invested would become Rs. 10.8 lakh.

6. Multiple repayment options

After saving and investing for a long time, one challenge that could emerge is how do you plan withdrawals from that accumulated fund. Retirement plans provide a perfect solution to the problem. You can choose to get the entire amount as a lump-sum or you can choose to get a regular monthly income from your corpus by buying an annuity. You can also choose a combination of both.

Now that you know the benefits of a pension plan, it is important to note that the ideal time to buy a pension plan is when you’re young. An early purchase of a pension plan not only allows the growth of funds but also the compounded accumulation of those funds over the due course. Ensure planning well for your retirement so that you have sufficient funds to sustain your standard of living and pursue other interests as well.

Health Management Services	Frequency	Cost (₹)
Doctor Insta-Consultations	3 consultations per month = 36 consultations per year	Average cost per session = ₹500 Total cost per year = ₹500 * 36 = ₹18,000
Health Coach (Diet & nutrition consultations)	1 consultation per month = 12 consultations per year	Average cost per session = ₹500 Total cost per year = ₹500 * 12 = ₹6,000
Emotional Wellness (Psychologists consultations)	1 consultation per month = 12 consultations per year	Average cost per session = ₹500 Total cost per year = ₹500 * 12 = ₹6,000
Network discounts:	Throughout the year	Assumption – Total expense on these services throughout the year Medicines (M) = ₹5,000 Lab-test booking (L) = ₹5,000 Total discounts that can be availed: M - 10% = ₹500 L - 10% = ₹500
Total per year as per assumption		₹31,000