List of Top Pension Plans You Can Invest in India

11 min read • Published 7 November 2022
Written by Krishna Deshmukh
Know the top pension plans that you can invest in India

Pension plans are a great way to secure your future after retirement. There are several pension plans available in India that you can choose to invest in according to your needs. Before discussing the top pension plans that one can avail of in India, let’s discuss what a pension plan is. 

What Are Pension Plans?

Pension plans generally come with multiple benefits of insurance coverage and investment. Even if a person has a good amount of savings, a pension plan is nevertheless important. Investing in such plans helps you to secure your finances for your post-retirement life.  

Once you invest in a pension plan, you will be given back the money invested in the form of a pension or annuity at regular intervals. Most pension plans reinvest your money into the securities market to generate lucrative returns. While some plans offer a lump sum maturity amount after retirement, others offer a lump sum amount along with annuitized payments. 

It is important to start investing in pension plans from an early age to reap the benefits of compounding. A well-chosen retirement plan will help you deal with post-retirement uncertainties and provide a steady flow of income.

Also Read: What is the Gold Monetisation Scheme? 

Top Pension Plans in India

Here is a list of the top pension plans in India, their features and taxation:

National Pension System (NPS)

Launched in 2004, this initiative by the central government is open to public, private, and unorganised sector employees, except those from the armed forces. This scheme lets you invest in a pension account at regular intervals during your course of employment. After retirement, you can take out 60% of the accumulated amount in a lump sum, while the remaining 40% is used to buy an annuity. 

Under NPS, individual savings are pooled into a pension fund which are invested into diversified portfolios of Government Bonds, Bills, Corporate Debentures and Shares. This is why it offers around 8 to 10% annualised returns which is higher than the fixed-income schemes. 

Taxation on NPS

You get a tax deduction of up to Rs. 1.5 lakh for your contribution to this scheme under Section 80CCD (1) of the IT Act. Apart from that, an additional deduction of Rs. 50,000 (for Tier 1 account) can be claimed under Section 80CCD (1B). Therefore, a total tax deduction of up to Rs. 2 lakhs per year can be claimed.

Immediate Annuity Plans

This is a type of annuity plan in which you receive payments as soon as you make your initial investment. In this annuity plan, you have to pay your premium in a lump sum and not in the form of periodic investments. This type of plan might be useful for people who are close to their retirement. 

As the payment starts immediately, there is no accumulation phase. You can choose the frequency of annuity payment that you want to receive. Both single-life and joint-life immediate annuity plans are available. A joint life annuity ensures that your spouse gets coverage after your death.

Taxation on Immediate Annuity Plans

While you will get a tax deduction of up to Rs. 1.5 lakh for your premium payment under Section 80CCC, the annuity you receive is not eligible for a tax deduction. This is because these annuities are treated as regular income and are taxed according to the applicable tax slabs.

Also Read: Key Things to Know About the Ulip Tax Benefits

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Operated by the Life Insurance Corporation of India (LIC), the government subsidies this plan. This scheme has no link with the financial market and is reliable and risk-free. The minimum age to subscribe to this scheme is 60, while there is no maximum age limit. 

The policy term for this scheme is 10 years. You can choose to get the pension payments monthly, quarterly, half-yearly or yearly. A loan facility is also available under this scheme, the interest of which will be recovered from the pension sum payable. 

Taxation on PMVVY

This is not a tax-saving scheme. The pension you receive monthly, quarterly, semi-annually or annually will be taxed at the applicable rate. You cannot claim a deduction under section 80C for your contribution under this scheme. However, it is exempt from GST.

Also Read: Deferred Annuity – Meaning, Types, Benefits and How it Works

Deferred Annuity Plans

These plans are specifically for long-term savings. This plan lets you invest in building a corpus, which then gets converted into an annuity plan after your retirement. The payment begins after a certain date and not as soon as you pay the premium. 

This plan includes two phases: The accumulation phase, which is when you pay your premiums regularly, and the vesting phase, which is when you start receiving the benefits. You can pay a single lump sum amount as the premium or make regular payments throughout the policy period. 

This plan is ideal for those who do not require immediate payouts and can let the accumulated money grow. There are various types of deferred annuities- fixed, indexed, and variable, according to their rate of returns. If you try withdrawing before maturity, you will be subject to charges.

Taxation on Deferred Annuity Plans

The premium paid to build the deferred annuity corpus is tax deductible up to Rs. 1.5 lakh is each year under Section 80CCC of the Income Tax Act. Also, during the vesting phase, you can withdraw one-third of the entire corpus as a tax-free amount as per Section 10 (10A) of the IT Act. 

Varishtha Pension Bima Yojana (VPBY)

Relaunched in 2017, this scheme provides immediate annuity payout to the elderly. The Life Insurance Corporation of India executes this policy, and it involves paying a single premium. Once you pay the premium of your choice, you start receiving a regular pension. This scheme provides a pension for 10 years at a fixed 8% per annum. 

You can opt for a pension on a monthly, quarterly, semi-annually or yearly basis. After 3 years, you can take a loan against the scheme. The loan amount can be up to 75% of the policy amount. There is also a provision for surrendering your policy in case of critical illness.

Also Read: Types of Pension Plans You Can Choose for Retirement Planning

Taxation on VPBY

This scheme provides benefits on income tax as well. According to Section 80C of the Income Tax Act, the premium you pay for this plan is tax-deductible. However, the pension amount that you will receive is taxable.

Defined Benefit Pension Plan

In this type of plan, the employer pays the employee a specific pension payment via lump sum or periodically, or a combination of both. It is an employer-sponsored retirement plan. Based on your age, tenure of service and earnings, etc., the employee’s benefit is computed. 

The generation of income under this plan is based on your income and length of tenure. Generally, employers are the only ones that contribute to this plan; however, employees may also be required to contribute. 

You need to work for a certain number of years to avail the benefits of this plan. This is the vesting period. If someone leaves the organisation before completing the vesting phase, they will not receive the full retirement benefit. 

Taxation on Defined Benefit Pension Plan

An employee’s contribution to this plan is eligible for an income tax deduction under Section 80C. The maximum limit for tax deduction is up to Rs. 1.5 lakh. The contributions made by the employer in this plan are tax deductible.

Employees can receive a lump sum payment or monthly payments. When the employee receives monthly payments or a lump sum payment, it is taxed as per the applicable tax laws. 

Senior Citizens Savings Scheme (SCSS)

People above the age of 60 can avail of this scheme. The minimum deposit amount is Rs. 1000, while the maximum is Rs. 15 lakhs. The maturity period for this plan is 5 years, after which an extension of three years is possible. 

You can opt for this scheme via banks or post offices. Premature withdrawal is possible; however, a penalty has to be paid. You can operate more than one account or opt for a joint account with a spouse. The account is transferable across all the banks and post offices of the country. 

Also Read: 6 Pension Schemes for Senior Citizens Offered in India

Taxation on SCSS

According to Section 80C of the Income Tax Act of 1961, an individual who invests in the Senior Citizen Savings Scheme is eligible for a tax deduction of up to Rs. 1.5 lakh per year. The tax deduction will occur at the source if you earn interest of more than Rs. 10,000 per annum.

Unit Linked Investment Plans

These plans offer dual benefits of insurance as well as investments. The policyholder can pay the premium annually or monthly. One part of the premium is invested, while the remaining amount provides life insurance cover. 

These plans are subject to risk in relation to the capital market. It will help if you choose your plan according to your risk appetite. You can decide to switch from equity to debt and vice-versa without the fear of having to pay extra charges.

Taxation on ULIP

Investing in these plans comes with income tax exemption benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act of 1961. The maturity amount (after a lock-in period of 5 years) of this plan will be taxable if the annual premium exceeds Rs 2.5 lakh in any year of the term of the policy.

Defined Contribution Plan

You need to contribute your own money towards this contribution retirement plan. Both the employer and employee make contributions regularly. In this plan, the pension amount depends on your contribution and investment returns; hence, it cannot be known at the beginning.  

The fixed amount you and your employer contribute over time is invested in equities and debts; hence, it can be ideal for investors who wish to take varying degrees of risk. If you have a greater risk appetite, you can opt for equities or else you can opt for debts. This plan lets you avail higher pension amounts, which can shield your savings from inflation.

Taxation on Defined Contribution Plan

You get a standard tax exemption of Rs. 1.5 lakh under Section 80C of the Income Tax Act, along with tax benefits under relevant Sections of 80CCD. 

Employee Provident Fund (EPF)

This scheme is one of the most popular examples of a defined contribution retirement plan. The Ministry of Labour regulates this scheme, while the Employee Provident Fund Organisation manages it. This scheme aims to build a sufficient retirement corpus for individuals. 

Both employees and employers contribute to this fund monthly at 12% of the employee’s basic salary (Basic + Dearness allowance). The current interest rate of EPF is 8.1%. Once an employee retires, they receive the total contribution in a lump sum along with interest. As the government manages it, people tend to consider it as a low-risk investment option.

Taxation on EPF

If you contribute to EPF, you can claim a tax deduction of up to Rs. 1.5 lakh per year under Section 80C. If you withdraw the amount after maturity or after five years of continuous employment, no tax needs to be paid. However, if you withdraw any amount due to some emergency before maturity, the amount will be taxable. 

Withdrawing money before you complete five consecutive years in service will result in the charging of tax; otherwise, it is tax-exempt. 

Final Words

If you plan to have a financially independent retirement, you must consider the features and taxability of pension plans before purchasing one. It would help if you also assess the associated risks that some investment schemes can pose to your postretirement income.

The best thing you can do is start investing early so that a large corpus can be built for your post-retirement life. Then, if you plan your finances smartly, you can fulfil your dream of high quality of life after retirement.

FAQs about Pension Plans

Who can subscribe to the National Pension System (NPS)?

Any citizen between 18-60 years of age can subscribe to the National Pension System. The NPS is a social security initiative by the Central Government. This pension program is open to employees from the public, private and even the unorganised sectors, except those from the armed forces.

Can I open multiple NPS accounts? 

No, you are not allowed to open multiple NPS accounts. One NPS account can only be opened in an individual capacity and cannot be operated jointly with your spouse or children. 

What is the interest rate for PMVVY? 

The Pradhan Mantri Vaya Vandana Yojana (PMVVY) offers an interest of 7.4% p.a., payable every month. Moreover, since the retirement scheme is essentially a pension plan, it does not attract any GST or service charge.

Was this helpful?

Krishna Deshmukh

Investment Principal
Krishna is an investment professional with a demonstrated history of working in Debt Capital Markets. He has completed his B.E. (Hons) in Computer Science Engineering from BITS Pilani and MBA (Finance) from JBIMS, Mumbai. He is currently working as Investments Principal at Wint Wealth. Previously he worked at Kotak Mahindra Bank at their DCM desk and Northern Arc Capital at their Structured Finance desk.

Popular Articles

Sovereign Gold Bond 2023-24 (Series 2): Price, Benefits, Issue Dates
Sovereign Gold Bond 2023-24 (Series 2): Price, Benefits, Issue Dates
  • 11 min read
  • 15 June 2023
What Are Gold BeES and How Do They Work?
What Are Gold BeES and How Do They Work?
  • 6 min read
  • 12 January 2023
Banking Ombudsman Scheme: Here is how to file your complaint against your Bank
Banking Ombudsman Scheme: Here is how to file your complaint against your Bank
  • 7 min read
  • 28 February 2023
How to Check Mutual Fund Status with Folio Number
How to Check Your Mutual Fund Status with a Folio Number?
  • 5 min read
  • 6 December 2022
Difference between Visa Classic, Platinum, Signature and Infinite Cards
Difference between Visa Classic, Platinum, Signature and Infinite Cards
  • 6 min read
  • 29 March 2023

Recent Articles

Is FD a Wealth Destroyer?
Is FD a Wealth Destroyer?
  • 4 min read
  • 6 December 2023
You Will Get Rs 100/day for Unresolved Complaints Beyond 30 Days
You Will Get Rs 100/day for Unresolved Complaints Beyond 30 Days
  • 3 min read
  • 5 December 2023
Does Equity Give You the Profit of Compounding?
Does Equity Give You the Profit of Compounding?
  • 3 min read
  • 5 December 2023
FD Withdrawal Rules Amended: You Can Now Prematurely Withdraw Upto Rs 1 Cr
FD Withdrawal Rules Amended: You Can Now Prematurely Withdraw Upto Rs 1 Cr
  • 3 min read
  • 5 December 2023
Mark Your Calendar: SGB’s Maiden Tranche Matures on November 30
Mark Your Calendar: SGB’s Maiden Tranche Matures on November 30
  • 3 min read
  • 28 November 2023