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WHAT IS PENSION SCHEME?

Pension Scheme

A pension scheme is a long-term savings plan that helps people save money for the future and it is a tax-efficient way to save money during your working life.

Over a period of 40-50 years, a pension scheme ensures an adequate corpus to deal with rising medical bills and expenses and a higher cost of living, driven by the country's inflation.

The amount of money saved into a pension scheme account is referred to as ‘contributions’. A pension scheme allows us to invest regular payments or transfer a lump sum amount into a pension fund account for retirement planning. When the policyholder dies, the entire pension amount is paid to the nominee or legal heir of the deceased.

People invest money under a pension scheme plan so that the fund accumulates over a certain period of time. That's why, the earlier we create a pension plan, the more time our retirement scheme will get to grow and the bigger the pension amount will be in the long run.

Tax benefits

Unlike a regular savings account, money invested under a pension scheme earns tax advantages. Pension schemes for retirement planning qualify for tax deductions under Section 80CCC of the Income Tax (I-T) Act, 1961.

In fact, you can avail of tax deductions up to a certain amount to buy a new pension policy or to make payments towards the renewal of an existing policy providing a periodical annuity or pension.

Under pension schemes, a certain amount is paid at maturity, which is exempted from tax and the rest amount is used to purchase an annuity. Annuity earnings are added to the taxable income and taxed according to your income tax slab. Also, no TDS (Tax Deducted at Source) is deducted on annuities.

How much to pay?

The amount you and your employer pay for your pension scheme may vary depending on which type of pension scheme you choose. However, by law, you and your employer have to pay a minimum amount into your pension scheme. Under a pension scheme, both employees and employers contribute to the scheme, and the greater the contribution, the greater the corpus.

Benefits of pension schemes

With pension plans, there are some benefits as mentioned below:

Guaranteed income

Under the ambit of a pension scheme, you get a fixed amount of income for your retirement planning. However, there is also an option to provide income to your spouse in case of your death.

Death benefit

Pension schemes also provide a death benefit plan for the financial security of your family in your absence. The nominee will receive the sum assured or death benefit after your death. However, if the pension fund scheme is discontinued due to some reason, the already accumulated amount in the policy will be given to the beneficiary.

Flexible premium payment terms

Depending upon your financial goal, there is also the flexibility to select the premium payment term plan.

A nominee has three options to use the pension funds:

— Buy an immediate annuity plan with the entire proceeds

— Withdraw the entire death benefit

— Partially withdraw the proceeds and use the balance amount to buy an annuity plan

LATEST UPDATES ON PENSION SCHEME

Tax cut, restoration of OPS on citizens' Budget wish list this year
Like every year, multiple suggestions come in from citizens on MyGov, some reasonable, others clearly whacky| January 25, 2023, Wednesday
A first: Atal Pension Yojana logs 10 million enrolments in a calendar year
The number of enrolments in 2022 rose to 12.5 million from 9.2 million in 2021| January 22, 2023, Sunday
Rajasthan govt firm on decision to revive Old Pension Scheme: CM Gehlot
He said the employees are an integral part of the state government and play an important role in taking the benefits of public ...| January 19, 2023, Thursday
RBI advises states against reverting to old pension scheme, says big risk
Himachal Pradesh, Chhattisgarh, Rajasthan and Punjab have decided to roll out the old pension scheme| January 17, 2023, Tuesday
Rahul Gandhi lauds Himachal govt's decision to restore Old Pension Scheme
Congress leader Rahul Gandhi on Sunday hailed the Himachal Pradesh government's decision to restore the Old Pension Scheme in its ...| January 15, 2023, Sunday
Himachal Pradesh restores old pension scheme for 136,000 employees
The just over a month old Congress government in Himachal Pradesh on Friday fulfilled a key poll promise, with the Cabinet, at ...| January 13, 2023, Friday
Unfunded pension schemes are attack on future generations: EAC-PM member
Concerned over revival of Old Pension Scheme by certain Opposition-ruled states, Economic Advisory Council to the Prime Minister ...| December 26, 2022, Monday
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Uttar Pradesh Chief Minister Yogi Adityanath Saturday termed the revision of the pension of armed forces personnel under the 'One ...| December 24, 2022, Saturday
Old pension scheme will put burden of Rs 1.10 trn on exchequer: Fadnavis
Maharashtra Deputy Chief Minister Devendra Fadnavis on Wednesday said the government will not revert to the old pension scheme as ...| December 21, 2022, Wednesday
Development took place even when old pension scheme was in place: Gehlot
Brushing aside the criticism of the revival of the old pension scheme (OPS) for Rajasthan government employees, Chief Minister ...| December 17, 2022, Saturday