Pension Schemes in India

pensionA pension is a financial arrangement to ensure a steady income for people when they are no longer in a position to earn income from employment. With life expectancy on the rise, investing in pension schemes has become ever more prudent today. There are many different pension schemes in India, both in the private sector and from the government. Every pension scheme offers different features to cater to the specific needs of different individuals.

The government of India actively promotes various pension schemes for the citizens. Tax deductions are offered on pension schemes in order to encourage people to save money in pension funds. The following are some of the prominent pension schemes run by the government of India at present (1):

  • Swatantra Sainik Samman Pension Scheme, 1980
  • Scheme for providing immediate relief to the families of Government servants who die while in service.   
  • Scheme of Liberalized Pensionary awards in the case of death / disablement as a result of attack by extremists, anti-social elements, etc.
  • Scheme for payment of pensions to Central Government Civil pensioners through authorised Banks.
  • Defined Contribution Pension Scheme (New Pension Scheme).
  • National Social Assistance Programme (NSAP) administered by Ministry of Rural Development.


In May 2009, the Pension Fund Regulatory and Development Authority (PFRDA) launched the “National Pension Scheme” (NPS) for all citizens of India in the age group of 18 to 55. Under this scheme, money invested in the pension fund during the working life of the investor will come back partly as a lump sum, and partly as an annual payment or pension. (2)

There are several pension schemes in the corporate sector that are created specially by the employers for the benefit of their employees. Labour Unions may also be involved in funding these pension schemes. Such occupational pensions are a form of deferred compensation, generally advantageous to employee and employer for tax reasons. Many pensions also contain an insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries, while annuity income insures against the risk of longevity. (3)

In the current era of economic liberalization in India, the government has allowed the participation of foreign insurance companies and pension funds to offer their schemes in India, in collaboration with their Indian counter-parts. There are popular pension plans offered by the private sector finance companies in collaboration with foreign partners, such as Bajaj Allianz, Tata-AIG, Birla Sun Life, Bharti AXA, ING Vysya, Future Generali, Aegeon Religare, and ICICI Prudential pension plans. Public sector corporations such as LIC and SBI, and private sector companies such as Kotak Life and Sahara Life also offer indigenous pension plans for the Indian citizens.  

Life Insurance Corporation (LIC) in India offers 4 major Pension Plans by the name of Jeevan Nidhi, which is a Deferred Annuity Pension Plan, Jeevan Akshay, which is an Immediate Annuity Plan, Jeevan Dhara and Jeevan Suraksha Pension Plans that allow the policyholder to make provision for regular income after the selected term. (4)

Investing in Pension Schemes is a wise approach for working people in all age groups so in order to ensure a more secure future for themselves. Whether it is public sector, government sector, or private sector workers, a pension serves as a financial security against an unpredictable future for anyone when there may be no other source of income except a pension.

 

- Vikas Vij (views expressed in the article are that of the author)

 

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