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Everything you need to Know About Single Premium Pension Plans


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Nov 12, 2021

By : Bajaj Allianz Life

Planning your post-retirement life is an extremely crucial step that you need to take early on in your life. One of the major reasons for this is that there might not be a steady source of income to get you and your spouse through your retirement lives. However, the question is, how do you plan for your retirement and ensure that you and your dependents are able to live a care-free life without any compromises?

Here’s where pension plans come into the picture. They provide you with a steady and regular source of income that you can use to take care of your living expenses. Sounds great, doesn’t it? What’s even more exciting is the fact that there are pension plans that only require you to make a single premium payment. Want to know more about single premium pension plans? Here’s something that can provide you with the necessary information.

 

What is a single premium pension plan?

 

As the name itself signifies, a single premium pension plan is basically a pension plan where you only make a single lump sum premium payment for the entire duration of the plan. Depending on the type of pension plan and terms & conditions specified therein, you either get to enjoy a regular stream of income or a lump sum payout at the end of the policy term, which can be used by you to take care of your post-retirement expenses.

 

Types of single premium pension plans in India

 

Now that you know what a single premium pension plan is, let’s take a look at the different types of pension plans that are available in India.

 

1. Single premium non-linked and non-participating annuity plans

 

These pension plans require you to make a single premium payment in exchange for a regular and steady stream of income. One of the main advantages of these plans is that you get the freedom to choose the frequency of annuity payments to your liking. There are monthly, quarterly, semi-annual, and annual pension payment frequencies. Also, they are not market-linked, which effectively means that your premium would not be invested in the financial markets.

Furthermore, there are two subtypes of single premium non-linked and non-participating annuity plans - immediate annuity plans and deferred annuity plans. Here’s a quick look at the both of them.

 

Immediate annuity plans

 

Under this type of a pension plan, the regular stream of pension payments starts immediately upon the payment of the single premium.

 

Deferred annuity plans

 

Under this type, the annuity payments are paid out only after the expiry of a certain period of time. And, you get the choice to specify the deferment of the premium payments too depending on the terms of the policy.

 

2. Single premium unit-linked pension plans

 

Unlike the type that you saw previously, the single premium unit-linked pension plan is market-linked. This effectively means that the premium payment that you make under this plan is invested in a pension fund, with the units of the fund being allotted to you.

Under these plans, you have an option to receive a portion of the premiums that you paid as a lump sum amount at the end of the policy term. However, the remaining part of your premiums are required to be used to purchase an annuity plan. Alternatively, you can also use the entire maturity benefit proceeds to purchase an annuity plans as well.

 

Benefits of single premium pension plans

 

Here are some of the benefits that you get to enjoy by opting for single premium pension plans.

  • With single premium plans, there’s absolutely no risk of the policy lapsing due to non-payment of premiums.
  • Having to pay premiums regularly can take a toll on your finances. There’s no such financial burden with single premium plans.
  • Single premium pension plans give you the opportunity to put windfall gains or retirement benefits to good use.

 

Conclusion

 

With many advantages and different types to choose from, single premium pension plans are currently one of the preferred ways to secure your post-retirement life. That said, before opting for one, make sure to use a retirement planning calculator to help plan your way forward in a better manner.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.