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Last Updated Wednesday June 28 2017 08:51 PM IST

Smart money: 5 ways to pension oneself

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Pension plans

Pension funds are good solutions to mitigate financial problems during low income and health associated with old age. Those who are not entitled to pension as part of their jobs need to prepare themselves for old age by availing good pension plans.

Accruing capital

While a host of solutions such as long-term recurring deposits, fixed deposits, provident fund etc can be considered as good options to save money, pension plans offer the best solution to accrue money. For example, the National Pension Scheme is the best solution to build up a pension corpus. Since it is affected by interest rates in the market, it might not offer guaranteed results, but in the last five years, it has been consistently offering ten per cent growth. Further, in addition to the Rs 1.5 lakh discount on long-term savings, pension schemes also offer additional tax savings of Rs 50,000.

The Atal Pension scheme

The Atal Pension Scheme is something that is being offered by the central government for people who might not have the benefits of gratuity, provident fund etc. Those aged between 18 and 40 can opt for the scheme and deposit a fixed amount each month for the pension scheme. The amount that has to be apportioned for the pension is determined by age, salary and monthly returns envisaged. Rs 5000 is the maximum pension that would be received and the government would also deposit a maximum of Rs 1000 to the corpus in the first five years. After the death of the pensioner, the corpus is returned to the nominee.

Save now, get pension later

While one can work, putting money away for savings and then deriving a monthly income from the saved money when one is not able to work constitutes the core idea of pensions. So one can save while one earns and in the next step invest in pension schemes called annuities.

Annuities

Just before one retires, one can invest in annuities and receive equated payments, based on the deposit, for the rest of the pensioner’s life. There are various options in the kind of annuities available and one can select fixed term annuities, annuities for the rest of the life and so on. Annuities are sold by insurance companies.

Forty percent of the amount saved in National Pension Scheme should be invested in annuities. If part of the amount is withdrawn before one turns 60, then 80 per cent of the amount should be invested in annuities. The pension amount is taxable. Further they also attract service tax.

Pension Bima Yojana

A plan offered by LIC, called Varishta Bima Yojana, is suitable for those who have attained 60 years of age. They need to make a one-time deposit. A minimum and maximum pension of Rs 500 and Rs 5000 can be made from the programme for which one has to deposit Rs 66,665 and Rs 668,665 respectively.

One can opt for the frequency of pensions as required

Pension schemes offer better returns than long-term fixed deposits or national savings schemes. One can obtain pension for 15 years and then withdraw the corpus or obtain pension for the whole life time. If the pensioner dies, the money would go to the nominees.

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