Pension Plans offered by Life Insurance Cos. have not gained momentum compared with the National Pension System (NPS) partly due to lack of liquidity and poor returns. The yields offered are not competitive when compared to existing Fixed Deposit rates even. There is no liquidity as the entire corpus gets locked-in and cannot be withdrawn in case of any emergency.
The Insurance Regulatory and Development Authority had prescribed Capital guarantees for all Pension Plans, banned partial withdrawal and made it mandatory for policyholders to buy annuities from the same Insurer. Unlike NPS there is no open market option available for policyholders investing in pension plans of Insurance Cos. Besides, people have the option of partial withdrawals in NPS.
In the case of deferred annuity plan, one third of the corpus can be withdrawn tax-free after the completion of the term of Insurance & for the rest it is compulsory to purchase annuity. Annuity Income (Pension) is taxable as per present Income-Tax laws; that is also an unfavorable point discouraging a person from buying a pension plan. But pension is a more secure & satisfying thing because it gives great mental satisfaction and a dignified living for a person.
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