Pension Annuity - A Vital Retirement Income Plan
Pension Annuity - A Vital Retirement Income Plan
Pension and annuity can describe the same financial plan; a regular income to retired individuals during their lifetimes. Pension annuity is the terminology used to define the contract between the holder and the provider. Such a service is useful and beneficial to plan the retirement income of an individual. While the individuals are employed, they accumulate money by making regular payment to the service provider. These amounts are invested in various instruments that increase the invested capital.
When the deposit period ends, the accumulated monies are distributed to the holder. This type of service does not necessarily commence when an individual retires. On commencement of the annuity distribution, the fundamental principle is to assure an income to retired individuals for their remaining life.
Contract for this service stipulates the exact amount that a retiree will receive from the monies accumulated. In addition the contract also provides the individuals the option to nominate a beneficiary in the event of their premature demise.
The accrued benefits can be distributed either monthly, quarterly, half yearly or annually. Additionally contributors can opt for a fixed amount that becomes payable when distribution commences. The policy holder can also opt for an increase in the sum received annually by a fixed percentage or the rate of inflation.
There are numerous types of plans for this service available in the market. The common type is a standard agreement where retirees receive a pre-defined amount during the remainder of their lives. The amount is determined and forms a part of the policy contract. Profits linked plans are riskier as contribution of the holder is invested and the profits earned on these are distributed. The benefit amount is variable and depends on how much the invested amount has grown.
Unit linked plans depend on the instruments used to invest the amount and are prone to market fluctuations. An immediate plan can save taxes for the holder of the policy and depends on the funds available with holder. One more type of annuity is the impaired life annuity. This plan is specifically for individuals whose life expectancy is lower than other people of the same age. Impaired life policy depends on several factors, such as individual lifestyle, habits, background and their incomes.
Another type of this service is a single premium plan. Under this plan the holder of policy makes a one-time lump sum payment. The income received on retirement under this plan is based on the growth that happens in the sum invested.
Indexed linked plans are another option available. The interest payable on the amount invested under this plan is based on the performance of a well known index. However the policy holder is guaranteed the principal amount. This plan gives holders the option of earning more interest on their investment without the risk of losing their invested amount.
Pension annuity can provide fixed periodical payments after retirement and additionally provides guarantee of not losing the principal invested. This guarantees that individuals do not have to face financial difficulties when they stop earning.
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