Question 1

How is monthly pension calculated?

Accepted Answer

Monthly pension is typically calculated based on the corpus accumulated at retirement and the annuity rate offered by the insurance provider. Formula: Monthly Pension = (Total Corpus × Annuity Rate) / 12.

Question 2

What is the difference between NPS and EPF pension?

Accepted Answer

NPS (National Pension System) is a market-linked voluntary contribution scheme where pension depends on fund performance and annuity rates. EPF (Employees' Provident Fund) includes EPS (Employees' Pension Scheme), which provides a defined pension based on service years and salary, capped at a certain limit.

Question 3

Is pension income taxable?

Accepted Answer

Yes, monthly pension received from an annuity plan or employer is treated as 'Income from Salary' or 'Income from Other Sources' and is taxed according to your income tax slab. However, the commuted pension (lump sum withdrawal) may be partially or fully tax-exempt depending on the scheme.

Question 4

What is an Annuity?

Accepted Answer

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. You purchase an annuity with your retirement corpus, and the insurance company pays you a regular pension in return.

Question 5

Can I withdraw my entire pension corpus at retirement?

Accepted Answer

It depends on the scheme. For NPS, you must use at least 40% of the corpus to purchase an annuity for monthly pension; the remaining 60% can be withdrawn tax-free. For other private pension plans, rules vary.

Question 6

What is the difference between Deferred and Immediate Annuity?

Accepted Answer

Immediate Annuity starts paying pension immediately after you pay the lump sum. Deferred Annuity allows you to accumulate a corpus over a period (accumulation phase) before the pension payments start.

Question 7

What is the vesting age?

Accepted Answer

Vesting age is the age at which you start receiving the pension. It is usually chosen by the policyholder at the time of buying the plan (e.g., 60 years).

Question 8

Can I take a loan against my pension plan?

Accepted Answer

Some insurance pension plans allow you to take a loan against the accumulated corpus during the accumulation phase, subject to terms and conditions.

Question 9

What happens to the pension if the policyholder dies?

Accepted Answer

If you choose a 'Joint Life' annuity or 'Return of Purchase Price' option, the pension continues to the spouse or the corpus is returned to the nominee. In a standard 'Life Annuity', payments stop upon death.

Question 10

Is there a minimum guaranteed pension?

Accepted Answer

Some government schemes like Atal Pension Yojana (APY) offer a guaranteed minimum pension. Market-linked plans (like NPS or ULIPs) do not guarantee a specific amount as it depends on fund performance.

Question 11

Can I increase my pension contribution later?

Accepted Answer

Yes, most pension plans allow you to increase your contribution (top-up) to build a larger corpus.

Question 12

What is the surrender value of a pension plan?

Accepted Answer

If you exit a traditional insurance pension plan before the vesting date, you get a surrender value. However, this is often lower than the total premiums paid, and the entire amount becomes taxable.

Question 13

Are pension plans eligible for Section 80C deduction?

Accepted Answer

Yes, contributions to pension plans (like NPS, EPF, PPF, and insurance pension plans) are eligible for tax deduction up to ₹1.5 Lakhs under Section 80C/80CCC.

Question 14

What is the 'Commutation of Pension'?

Accepted Answer

Commutation refers to withdrawing a lump sum amount from your pension corpus at the time of retirement. The remaining amount is used to generate monthly pension.

Question 15

Can I have multiple pension plans?

Accepted Answer

Yes, you can invest in multiple pension plans (e.g., NPS + EPF + Private Annuity) to diversify and secure your retirement.

Question 16

How does inflation affect my pension?

Accepted Answer

Inflation reduces the purchasing power of money. A fixed pension of ₹50,000 today will be worth much less in 10 years. It is important to plan for a growing corpus or an inflation-adjusted annuity.

Question 17

What is the 'Return of Purchase Price' option?

Accepted Answer

In this annuity option, the pensioner receives a monthly pension for life, and upon death, the initial invested amount (purchase price) is returned to the nominee.

Question 18

Is it better to invest in Mutual Funds or Pension Plans?

Accepted Answer

Mutual Funds (especially Equity Funds) generally offer higher returns over the long term but come with market risk. Pension plans offer more stability and tax benefits but may have lower returns and lock-ins. A mix of both is often recommended.

Question 19

What is the Atal Pension Yojana (APY)?

Accepted Answer

APY is a government scheme for the unorganized sector that provides a guaranteed minimum pension of ₹1,000 to ₹5,000 per month after age 60.

Question 20

Can NRIs invest in pension plans in India?

Accepted Answer

Yes, NRIs can invest in NPS and other insurance pension plans in India, subject to FEMA regulations.

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