October 10, 2025
4 mins read
Pension plans help individuals create a steady source of income for their retirement years. These plans encourage long-term saving, often through monthly or annual contributions, to build a corpus that offers post-retirement payouts. The payout structure may be lump sum, annuity-based, or a mix of both.
Various pension products are available in India, each with unique features, investment methods, and maturity options. Choosing the right pension plan is crucial for ensuring financial independence after retirement and protecting against inflation and medical emergencies. Understanding the types and categories helps build a retirement strategy that aligns with income levels and future goals.
A pension plan is a financial instrument that helps individuals accumulate savings during their working life and provides a regular income post-retirement. The purpose is to secure economic stability after one's earnings stop.
The government may offer pension plans, insurance companies, or mutual fund houses. They may have defined contribution or defined benefit structures, depending on how the income is calculated. Contributions may be voluntary or mandatory, and annuity payments usually start after a certain age or upon retirement.
Pension plans in India are designed to provide you with a steady income after retirement. They can be broadly classified into ten main types, each serving different retirement needs and preferences.
A deferred annuity plan allows you to invest a fixed amount regularly or as a lump sum over a certain period, with payouts beginning only after a pre-decided tenure or your retirement date. This time gap, called the accumulation phase, helps you build a large corpus that can later be converted into regular monthly, quarterly, or yearly income. You might find this plan ideal if you’re still in your working years and want to secure a future income stream. It can also offer tax benefits under Sections 80C and 10(10A) of the Income Tax Act, making it appealing for long-term retirement planning.
An immediate annuity plan starts paying you an income almost right away after you invest a lump sum. There’s no waiting or accumulation period — payouts can begin from the next month, quarter, or year, depending on your choice. This type of plan suits you if you’re close to or already retired and have a significant amount of money from, say, retirement savings, a property sale, or a maturity payout. You can choose how long you want to receive payments — for life, for a fixed period, or with a provision for your spouse to continue receiving the annuity after your death.
An annuity certain plan provides a fixed income for a specific number of years, regardless of whether you survive for the entire period. If you pass away before the chosen term ends, your nominee continues to receive the remaining payments until the term is complete. This option gives you the flexibility to decide the payment tenure at the time of purchase, making it suitable for medium-term financial planning. It works well if you want guaranteed income for a set duration, perhaps to cover a loan, fund a child’s education, or bridge income between retirement and another pension source.
A with-cover pension plan combines retirement savings with life insurance protection. Alongside building your retirement corpus, it provides a life cover, ensuring your nominee gets a lump sum if you die during the accumulation phase. This type of plan is useful if you want to protect your family financially while also preparing for your retirement. Since the premium includes both investment and insurance components, the cost is usually higher than a without-cover plan. However, the dual benefit of retirement income and risk cover can give you added peace of mind.
Without-cover pension plans are designed purely for retirement income, without any life insurance element. The focus is on maximising your investment’s growth and building a larger retirement corpus. These plans are generally more cost-effective because all your contributions are channelled towards generating returns rather than splitting between insurance and investment. If you already have separate life insurance or don’t require coverage, this option may be better for you. It’s a straightforward way to accumulate wealth for your post-retirement years while keeping plan costs low.
In a guaranteed period annuity, the insurer pays you income for a specific period — such as 5, 10, or 15 years — regardless of whether you’re alive for the entire term. If you pass away during this period, your nominee will continue to receive the payments until the guarantee term expires. This type of plan is particularly useful if you want to ensure income for a defined time, such as until another pension plan starts, or to provide your family with assured payments for a set duration. After the period ends, payouts stop completely.
A life annuity ensures that you receive regular income for as long as you live, giving you financial security no matter how long your retirement lasts. Variants like “life annuity with return of purchase price” return your invested amount to your nominee after your death, while others may continue payouts to your spouse. This type of plan is ideal if you want the certainty of lifelong income without worrying about outliving your savings. It is especially appealing for individuals who prioritise stability and predictability in their post-retirement financial planning.
The National Pension Scheme is a government-backed retirement savings option available to both salaried and self-employed individuals. You make regular contributions during your working years, which are invested in a mix of equity, debt, and government securities. At retirement, you can withdraw up to 60% of the corpus as a lump sum (tax-free up to ₹5 lakh) and must use at least 40% to buy an annuity. NPS offers market-linked returns, flexibility in choosing investment allocation, and tax benefits under Sections 80CCD(1) and 80CCD(1B), making it a popular choice for retirement planning.
Pension funds are professionally managed investment pools that aim to grow your retirement savings over the long term. Managed by mutual fund houses or pension fund managers, these funds invest in a combination of equity, debt, or hybrid instruments depending on the fund’s mandate and your risk appetite. Returns are market-linked, meaning they can vary, but over the long run they can help you build a substantial corpus. Pension funds often provide deferred annuity options and are regulated by the Pension Fund Regulatory and Development Authority (PFRDA) or SEBI, ensuring transparency and oversight.
Whole life ULIP pension plans combine life insurance protection with market-linked investment growth. A portion of your premium goes towards life cover, while the rest is invested in equity, debt, or balanced funds of your choice. These plans offer flexibility in fund allocation, partial withdrawals, and switching between funds. They also provide tax benefits under Section 80C. At maturity or retirement, you can withdraw part of the corpus and use the remainder to purchase an annuity. While ULIPs have higher charges compared to pure pension products, they offer the advantage of insurance plus potential market growth.
ULIP-based pension plans combine insurance coverage and investment benefits. A portion of the premium goes toward life cover, while the rest is invested in market instruments.
They offer tax benefits under Section 80C and long-term capital appreciation. Upon maturity or retirement, a portion is withdrawn, and the rest can be used to buy an annuity. ULIPs are flexible but come with higher charges.
Pension planning is a key component of financial security after retirement. With options like deferred annuities, life annuities, NPS, and ULIPs, individuals can choose a plan that suits their retirement goals, income needs, and risk tolerance.
Each type of pension plan comes with different benefits and limitations. Evaluating the payout options, tax treatment, and tenure helps make an informed decision. Early planning ensures a stable and independent life after employment ends.
Share this article: 
No result found
The major types include deferred annuity, immediate annuity, life annuity, annuity certain, NPS, guaranteed annuity, and ULIP-based plans. Each offers different payout structures and features for retirement planning.
There is no one-size-fits-all. Deferred annuity suits early planners, immediate annuity fits retirees, and NPS offers flexibility with tax benefits. The best plan depends on financial needs and goals.
For salaried individuals, NPS offers flexibility and returns. For those close to retirement, immediate annuity or life annuity plans ensure stable income. The best plan balances security and growth.
To get ₹50,000/month, you need a corpus of roughly ₹1.2 crore at retirement and opt for an annuity rate around 5% annually. Regular contributions and compounding over 25–30 years help reach this target.
You’ll need a retirement corpus of approximately ₹70–75 lakh, depending on annuity rates. This can be built through long-term SIPs in NPS, pension funds, or PPF, combined with strategic annuity purchase.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
Please Enter Mobile Number
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
