What is a Pension?
A pension or an annuity is a fund that you purchase to receive a regular stream of income from. Income from pensions are guaranteed and make an attractive investment opportunity for retirees. There are many types of pension schemes one could choose from. Pension plans can be categorized based on timing (when the pension is received), the term of pension, insurance cover, and holders. Read on to know which pension schemes are right for you!
Types of Pension Plans:
Pension Schemes Based on Timing of Pension
In this type of scheme, the pension or annuity begins right away. This is suitable for those who have started their retirement plan.
In a deferred annuity, pension payments start after the payment term is over. The payment term may involve a single premium or a series of regular premiums through the policy term.
Pension Schemes Based on Policy Term
This annuity offers regular income to the annuitant throughout his/her lifetime. No payment is made to the beneficiaries after the annuitants’ death.
Guaranteed period annuity:
Annuities are payable for a guaranteed period such as 5,10, or 15 years. The annuity payment stops upon the death of the annuitant. If the annuitant passes away before the guaranteed period expires, the beneficiary receives the annuity.
An annuity certain guarantees an annuity for a fixed term of years say 5, 10, or 15 years. If the annuitant survives the term, then no further payments are made. If the annuitant passes away before the expiry of the term – payments are made to the beneficiaries.
Pension Schemes Based on Insurance Cover
A pension plan can be bought with an insurance cover or return of purchase price. In such a plan, the purchase price/insurance cover is paid back at the end of the policy term/ or upon the death of the policyholder. During the policy term, the annuitant receives a pension.
A without cover pension plan only pays a regular pension through the policy term.
Pension Schemes Based on Mode of Holding
Joint Holder Annuity:
In a joint pension plan, the annuity is first paid to the primary annuitant. After the death of the primary annuitant, the second annuitant continues to receive the annuity. The payouts cease after the death of the second annuitant. This is suitable for those with dependent spouses.
Single Holder Annuity:
A single holder annuity pays a pension to the policyholder for the defined policy term.