Pension plans (also referred to as retirement plans) are offered by insurance companies to help individuals build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity. Pension plans are distinct from life insurance plans, which are taken to cover risk in case of an unfortunate event.
Many companies offer pension plans with and without risk cover. It is good to choose one without life cover because it will avoid mortality charges thus increases the net invested amount.
Pension plans are available in both Traditional and Unit Linked versions. Unit Linked Pension Plan(ULPP) scores over mutual funds in terms of low fund management charges and also flexibility between debt and equity mixtures and switching options.
On Vesting , the investors have the option either to get pension from the current company where he built the corpus or he can get it from open market if he feels some other company has better annuity rate.
One third of the corpus can be commuted tax-free, and remaining should be used to buy an annuity plan.
Investments are exempted from tax and pension is taxable.
The central government has also introduced revolutionary National Pension System (NPS) with very low fund management charges and choice of fund management companies.