Top Benefits of Pension Plans in India

What is a Pension Plan?

What Are the Major Benefits of Pension Plans?

Having a well evaluated retirement plan is a crucial component of a robust financial planning. Let’s see the advantages of retirement plans and why they are a must to have: 

1. Long Term Savings

Pension plans are long term, and you can contribute regularly during your earning years. Thus, over a long period you build a large corpus that guarantees a steady income during the post-retirement phase. 

2. Maintaining Lifestyle

With an increased life expectancy, ever growing inflation, a stepped-up lifestyle, pension plans have become an absolute necessity. They provide a financial cushion of steady income ensuring that retirees maintain their standard of living without the constant worry of outliving their savings.  

3. Tax Advantages

The contributions made towards pension plans are tax exempt under section 80C as per the prevailing income tax laws. However, the pension gained from these plans is considered similar to salary income and is thus taxed basis the regular income tax slab

Check more about the taxability of pension.

4. Power of Compounding

The golden feature of investing is “Power of compounding”, which refers to generating interest on interest. Thus, the longer you stay invested, the higher are your returns because they get a longer growth phase.

Pension plans leverage this power of compounding because they get a long growth phase during the earning years.

5. Consistent Growth Through Investments

Pension funds are typically invested in a diversified portfolio, allowing for potential growth over the years. The continued contributions over a period generate returns that are reinvested, leading to accelerated growth. This investment component adds a layer of dynamism to pension plans, thus maximising the returns.

6. Peace of Mind

A peace of mind that your retirement is financially secure with steady income flow and your dependents are also financially protected in case of your unfortunate demise. That’s what the pension plans offer.

Beyond individual financial security, insurance-based pension plans also extend their benefits to financial protection for beneficiaries. This coverage ensures that in the unfortunate event of the policy holder's demise, their loved ones continue to be financially protected.

How to Choose the Right Pension Plan?

Frequently Asked Questions

How Much Should I Contribute to my Pension Plan?

The amount you contribute must be decided based on factors like your age, income, retirement goals, and employer matching contributions if available. Aim to contribute enough to maximize returns and meet your retirement needs.

Do Pension Plans Offer Survivor Benefits?

Yes, the insurance-based pension plans provide survivor benefits, ensuring that your beneficiaries receive continued financial support in case of your unfortunate demise. 

What Happens to my EPF if I Change Jobs?


In cases of job switch from an organisation to another EPFO registered organisation, a fresh PF account is opened under the same UAN. You can transfer your existing balance from your previous account to the other. 

Read More: Employee Provident Fund

Is it good to invest in pension plan?

Pension plans are designed to provide a safe investment, resulting in steady income in your retirement years. Thus, it's a prudent decision to invest in a pension plan. 

Is pension money safe?

Yes, Pension money is safe, especially if it's managed by reputable institutions. However, the returns might depend on the managing institution and the plan chosen by you. 

What are the disadvantages of NPS?

The National Pension System (NPS) offers several advantages but has a few drawbacks too.  It has limited early withdrawal options, mandatory that a portion of the corpus must be used to purchase an annuity, and NPS Tier1 returns are also subject to market risks.

Can you take loan on pension?

Pension is considered a stable source of income. Hence many lenders provide a loan against pension.

Can pension plan be surrendered?

Yes, most pension plans can be surrendered before the maturity date, but this often comes with high surrender charges.