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Pension plans

Pension plans are annuity plans which are designed to create a steady flow of income after retirement. Annuities are a series of regular incomes which are paid throughout the lifetime of an individual. Pension plans help policyholders to build up a retirement corpus from which annuity payments are made. Pension plans are different from other life insurance plans as they pay the maturity proceeds in the form of annuities and not in a lump sum.

Types of pension plans in India

There are two types of pension plans available in India. They are as follows:

  • Deferred annuity plans

    Under deferred pension plans, the payment of the annuity is deferred up to a certain period. In these plans, the policyholder firsts build up a corpus by paying premiums. The term of the plan is called the deferment period as the annuity is not paid during that period. After the term of the plan is over, the deferment period is over. Thereafter, the policyholder receives annuity pay-outs for his whole life.

  • Immediate annuity plans

    Under immediate annuity plans, annuity pay-outs start immediately after a lump sum corpus is paid to the insurance company. Under these plans, the policyholder pays a single premium to the company. Thereafter, the company pays annuity pay-outs immediately from the next month, quarter, half-year or year as chosen by the policyholder.

Features of pension plans

The important features of pension plans include the following:

  • There is no death benefit when annuity pay-outs start. Under deferred annuity plans, when the premiums are being paid, the plan has a death benefit. But under immediate annuity plans, where the annuity pay-outs start immediately, no benefit is, usually, paid on death. The annuity pay-outs stop when the policyholder dies. In some cases, the single premium paid at the time of buying the immediate annuity plan is returned.
  • Deferred pension plans come in traditional as well as unit-linked variants.
  • The date on which the annuity pay-outs start and the policy matures is called the vesting date.
  • In the case of immediate annuity plans, there are multiple annuity payment options. The policyholder can choose to include the spouse as the second annuitant in which case annuity is paid till either of them is alive. Similarly, the annuity pay-outs can be chosen to increase every year. There is an option to receive the purchase price back if the annuitant dies, etc.
  • When the deferred annuity plan matures, the policyholder has three options.

    • 1/3rd of the maturity benefit can be withdrawn in cash. This benefit is tax-free and the withdrawal is called commutation of pension. The remaining 2/3rd of the corpus is compulsorily paid an annuity.
    • The vesting date can be postponed by the policyholder.
    • The policyholder can buy a single premium deferred annuity plan using the proceeds of the plan.
  • The annuities which are paid under the plan are taxable. Only the commuted part of the pension is tax-free under Section 10 (10A). Moreover, the premiums paid for the plan qualify for tax deduction under Section 80CCC.

How to choose the best pension plans

To choose the best pension plans, individuals should look out for the following parameters:

  • The plan should have a long tenure so that vesting occurs when the policyholder is quite old and approaching retirement. Vesting of the plan when the policyholder is still earning does not make sense as the annuity pay-outs would not be required at that time.
  • Selecting a unit-linked pension plan is better as the corpus grows at a good rate.
  • If it is an immediate annuity plan, there should be various options of availing annuity pay-outs.
  • The plan should have optional riders for a more comprehensive scope of protection.

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Best companies offering pension plans

Some of the best pension plans available in the market include the following:

Name of the companyPension plans offeredSalient features
  • HDFC Life Click2Retire Plan
  • HDFC Life Pension Guaranteed Plan
  • HDFC Life Guaranteed Pension Plan
  • HDFC Life New Immediate Annuity Plan
  • HDFC Life Pension Super Plus
  • HDFC Life Single Premium Pension Super Plan
  • HDFC Life Assured Pension Plan (ULIP)
  • HDFC Life Personal Pension Plus
  • Both traditional, as well as unit-linked pension plans, are offered
  • The plans can be bought online
  • Both deferred annuity and immediate annuity plans are offered
Bajaj Allianz
  • Pension Guarantee
  • Retire Rich
  • Retire Rich is a unit-linked pension plan which offers guaranteed vesting and death benefits
  • Top-ups are also allowed under Retire Rich plan
  • Pension Guarantee is an immediate annuity plan with six annuity pay-out options
ICICI Prudential
  • ICICI Pru Easy Retirement
  • ICICI Pru Immediate Annuity
  • Both single and regular premium options are available under Easy Retirement plan
  • Easy Retirement is a unit-linked pension plan with Assured Benefits even when markets are volatile
  • There are a range of pay-out options under an immediate annuity plan
  • LIC’s New Jeevan Nidhi
  • LIC’s Jeevan Akshay VI
  • Jeevan Nidhi is a traditional pension plan which attracts bonus
  • Jeevan Akshay VI is an immediate annuity plan with seven annuity options


Premiums paid are exempted under Section 80CCC which, together with Section 80C, has a maximum deduction limit of Rs.1.5 lakhs.

No, in the case of a death benefit, the mode of payment would be as chosen by the nominee. The nominee can choose the take the death benefit either in the lump sum or in annuity installments.

Yes, some pension plans offer optional riders.

Some deferred pension plans, which are offered as traditional plans, take part in bonus declarations. It depends on the plan offered.

Commutation of pension is applicable under deferred annuity plans where 1/3rd of the vesting benefit is allowed to be withdrawn in cash. The cash withdrawal is called commutation of pension and it is tax-free.

Yes, the annuity which the annuitant receives is treated as a taxable income in his/her hand.

An annuitant is an individual who is entitled to receive annuity payments.

Annuities can be received monthly, quarterly, half-yearly or annually. The annuitant can choose any mode as per his/her suitability.

Joint life annuities are annuities which are paid throughout the lifetime of both the annuitant and his/her spouse.

The individual on whose life the pension plan is taken is called the primary annuitant. Annuities are paid throughout the lifetime of the primary annuitant. After the death of the primary annuitant, if the spouse is alive, annuity payment would not stop. They would continue until the lifetime of the spouse. The spouse would be called the secondary annuitant.

Yes, many insurance companies allow unit-linked pension plans as well as traditional pension plans.

No, pension plans mandate the maturity benefit to be paid in annuity installments. Only 1/3rd of the corpus can be taken in a lump sum. From the remaining part, annuities should be paid.

Yes, on maturity, many deferred annuity plans allow the policyholder to defer the annuity payouts.

Under immediate annuity plans, annuity payments are made till the annuitant’s lifetime. If the return of purchase price option is selected, the lump sum amount used to buy the immediate annuity plan is returned back when the annuitant dies.

Annuity rates are fixed by the insurance company. They depend on the age of the annuitant and the mode of annuity payouts selected.