Types of Retirement Planning Services

retirement planning services

Retirement plans are benefit schemes that compensate the contributor with a steady regular income after their retirement. There are different types of retirement plans available in the market today. Their features differ on the basis of the subscriber’s payout needs (annuity or lump sum), insurance requirements (insurance-based or non-insurance based), the timing of payout (deferred benefit or immediate annuity), expected returns and risk appetite (ULIPs or government-sponsored).

Employment-based pension plans

Work-based pension plans are part of an employee welfare mechanism set in place by an employer to provide social security to employees in the form of pension during retirement. They are also categorised as non-insurance-based pension plans as they cannot be individually availed through an insurance company but have to be subscribed to, in the capacity of an employee.

The pension amount in work-based plans is usually contributed by both, the employer and the employee. It is, therefore, considered as a component of the employee’s gross salary. Employment-based pension plans come in three variations-

  • Defined Contribution Plans: The total benefit received is a direct function of the total monthly contributionsand return on investments.
  • Defined Benefit Plans: The total benefit received is calculated based on the number of years of service and the amount of salary.
  • Hybrid Plans: Combine the features of Defined Contribution Plans and Defined Benefit Plans

Insurance-based pension plans

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Insurance based-pension plans need to be availed through an insurance company and do not flow from an employer-employee relationship. Therefore, insurance-based pension plans are also known as personal pension plans. Such plans may also include a life insurance cover along with retirement benefits by providing death compensation to the subscriber.

There are three types of insurance-based pension plans, namely-

  • Deferred Annuity Plans: Offer fixed payout after the subscriber attains a certain specified age. Such plans may further invest the subscriber’s funds in traditional, low-risk debt instruments (Traditional Retirement Plans) or capital market securities like stocks and bonds (Unit-Linked Insurance Plans).
  • Immediate Annuity Plans: Immediate annuity plans are retirement plans that have no waiting period for the annuity to start getting credited in the pensioner’s account. Most immediate annuity retirement schemes offer a start date for when the pension payout commences.
  • Pension Plans With Cover and Pension Plans Without Cover: With cover pension plans are a confluence of life insurance plans and retirement benefit schemes. Such plans offer death compensation to the policy-holder. Without cover pension plans simply offer annuity and not life cover.

Government-sponsored schemes

Government-sponsored schemes are post-retirement investment funds initiated by the Central Government. They offer social security in the form of a pension. There are various government retirement schemes set up in India like the National Pension Scheme, Employee’s Provident Fund, Public Provident Fund, etc.

Thus, it is clear that there are an ample number of investment options available for individuals to earn a regular income throughout their post-retirement life. Investors must first devise a retirement strategy, identify their goals like life cover or annuity, understand their risk profile before choosing a suitable retirement scheme.

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