What is pension scheme?

pension scheme

About pension scheme

What is 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Benefits of pension schemes

With pension plans, there are some benefits as mentioned below:
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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.
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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.
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Flexible premium payment terms

Depending upon your financial goal, there is also the flexibility to select the premium payment term plan.
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A nominee has three options to use the pension funds:
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— 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

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6 min read Last Updated :Mar 17 2024 | 9:41 PM IST
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Himachal Pradesh govt issues notification for granting pension to women

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Make your retirement portfolio last longer, withdraw funds conservatively

5 min read Last Updated :Mar 03 2024 | 10:07 PM IST
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Nagaland govt employees protest, demand restoration of old pension scheme

1 min read Last Updated :Feb 17 2024 | 6:58 AM IST
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EPFO releases guidelines for EPS members having multiple accounts

2 min read Last Updated :Jan 31 2024 | 11:49 PM IST
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Volume IconTMS Ep572: Old pension scheme, Tesla in India, markets this week, Houthis

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US pension fund's index switch: Indian equity mkts set for $3.6 bn bonanza

4 min read Last Updated :Nov 27 2023 | 9:48 PM IST
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RSS backed-Bharatiya Mazdoor Sangh asks govt to restore Old Pension Scheme

2 min read Last Updated :Nov 22 2023 | 2:22 PM IST
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Govt employees to hold Family March on Nov 8 for Old Pension Scheme in Maha

2 min read Last Updated :Oct 23 2023 | 1:36 PM IST
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Assembly polls: The age-old debate on OPS vs NPS is not retired hurt, yet

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Table: Pension plans of various companies, terms and fees explained

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Only 3.62% of Rajasthan's workers registered to Centre's pension scheme

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Pension reform reversal

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States reverting to OPS poses significant fiscal risks: RBI paper

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Implementation of OPS will be done in 1st cabinet meeting: Bhupinder Hooda

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EPFO to appoint actuary to get consultancy for insurance, pension scheme

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21% unorganised workers opted out of Centre's pension scheme in six months

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After restoring OPS, debt-ridden Himachal hits market for Rs 800 cr loan

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