As we work hard through our lives, planning for a secure future becomes essential. One of the best ways to ensure financial stability post-retirement is through pension schemes. India also offers various pension schemes designed to provide a steady income after one retires. Let’s take a look at some popular pension schemes in India.
Employees’ Provident Fund (EPF):
The EPF is a mandatory scheme for salaried employees in India. Both the employee and employer contribute a certain percentage of the salary to the fund every month. The money accumulates over time and can be withdrawn after retirement. This scheme provides both savings and financial security.
National Pension Scheme (NPS):
The NPS is a government-backed scheme that offers a pension after retirement. It is open to all citizens of India between the ages of 18 and 65. NPS allows individuals to contribute regularly and invest in a mix of equity, corporate bonds, and government securities. The returns are market-linked, which means the value of your investment can grow based on market performance.
Atal Pension Yojana (APY):
The APY is targeted at workers in the unorganized sector. It also provides a fixed monthly pension ranging from Rs. 1,000 to Rs. 5,000, depending on the contribution. The government also co-contributes to the pension amount for eligible subscribers, making it an attractive option for low-income earners.
Public Provident Fund (PPF):
he PPF is a long-term savings scheme that also offers a pension-like benefit. It is a government-backed, low-risk investment option. Although not a traditional pension scheme, the maturity proceeds of the PPF can be used for retirement planning.
Example:
Let’s consider the case of Ramesh, a 30-year-old working professional. He starts investing in the NPS by contributing Rs. 5,000 per month. Over 30 years, with an average return of 10%, Ramesh’s total corpus can grow significantly.
By the time he turns 60, Ramesh may have a corpus of around Rs. 1 crore. This would provide him with a monthly pension of Rs. 50,000 or more, depending on how he chooses to withdraw his pension.
Factors to Consider While Choosing a Pension Scheme:
- Age and Time Horizon: If you are younger, schemes like NPS, which have a longer investment horizon, can be ideal for wealth accumulation. On the other hand, senior citizens might prefer schemes like SCSS for stable income.
- Risk Appetite: If you are comfortable with market-linked risks, NPS or EPF can be attractive as they offer potential higher returns. However, if you prefer low-risk, fixed returns, then APY and SCSS are safer options.
- Contribution Capacity: Consider how much you can contribute to the scheme each month. For salaried individuals, EPF is automatically deducted, while in NPS and APY, the contribution is voluntary. Choose a scheme where you can comfortably manage the regular contributions.
- Tax Benefits: Some schemes like NPS and EPF offer tax deductions under Section 80C, which can be an added advantage when planning your retirement savings.
Conclusion:
Indian pension schemes provide a wide range of options to secure one’s future. Whether you are employed in the formal sector or working in the unorganized sector, there is a pension scheme suited to your needs. By starting early and contributing regularly, you can ensure a comfortable and financially secure retirement.
– Ketaki Dandekar (Team Arthology)
Read more about Pension Schemes in India here – https://www.iciciprulife.com/pension-funds.html