Best Pension Plans In India 2025 - Types, Risks And More
Did you know? A study by Max Life Insurance revealed that around 57% of urban Indians feel that their savings for retirement will be exhausted within the first 10 years of their retirement1. Such figures can be wake-up calls regarding the uncertainty of life, making it crucial to focus on financial planning after retirement, especially during your golden years.
This is exactly where a pension plan in India steps in—it acts as your financial safety net during your retirement years. If you're unfamiliar with how these plans work, don't worry. In this blog, we’ll break down what a pension plan is, explore the different types, highlight the key benefits, and explain why choosing one of the best retirement plans in India 2025 could be one of the smartest financial decisions for your future. Whether you're planning early or nearing retirement, understanding your retirement planning options can help ensure a stable and stress-free life after your working years.
What Is A Pension Plan?
A pension plan is a long-term financial tool designed to support you during retirement. By making regular contributions during your working years, you build a corpus that ensures a steady income once you stop earning. The power of compounding, combined with disciplined investing, makes pension plans one of the best retirement planning options in India. This way, you can continue to enjoy your lifestyle without financial stress in your golden years.
Who Should Opt For Pension Plans?
Pension plans are ideal for anyone aiming to be financially secure after they stop working—whether you're a salaried employee, a self-employed professional, or a business owner. These retirement-focused plans help build a disciplined savings habit over time, ensuring a stable income post-retirement. Starting your retirement plan early allows your investments to grow significantly, thanks to the power of compounding. This makes pension plans an essential component of effective retirement planning in India.
Types Of Pension Plans
There are numerous types of pension plans in India; each one is devised to help you plan for certain specific needs in your life post-retirement. Some of the best pension plans 2025 are listed below :
Types of Pension Plans | Description |
Deferred Annuity | Builds a retirement corpus over time through regular premiums, with payouts starting later. |
Immediate Annuity | Offers instant income after a lump-sum investment. |
Pension Plans with Life Cover | Combines retirement savings with life insurance protection. |
Guaranteed Period Annuity | Fixed payouts for a set period, paid even if the annuitant passes away. |
Annuity Certain | Guaranteed payouts for a specific duration, irrespective of the annuitant’s survival. |
Life Annuity | Regular income for life, extendable to a spouse in joint life options. |
Pension Funds | Professionally managed market-linked funds for long-term retirement growth. |
National Pension Scheme | Government-backed, tax-efficient, and market-linked retirement solution. |
Pension Plans under Mutual Funds | Market-based retirement savings with varying risk and liquidity. |
Post Office Pension Schemes | Safe, fixed-return government schemes ideal for conservative savers. |
Here is a detailed description of each of the pension plans we have mentioned above. Skim through these and pick the one that suits you best.
1. Deferred Annuity
A deferred annuity is a type of life insurance plan that provides you with a fixed income in the future on the date of your choice. It offers flexible premium amounts and schedules, making it one of the best pension plans in India for salaried individuals in India. Additionally, your premiums in this plan are eligible for tax exemption under section 80C.
2. Immediate Annuity
It is one of the basic types of pension schemes where individuals can invest a fixed lump-sum amount to receive a fixed post-retirement income. This financial investment is further converted into a guaranteed flow of income for a minimum of 5 years or a lifetime. It allows you to start withdrawing after one year of investing in the plan.
3. Pension Plans With Life Cover
Life cover pension plans in India basically cover two components: the investment component and the insurance component. It combines investment with life insurance. To ensure this, a part of the premium you pay is allocated in the financial market, such as the equity and debt markets, and the rest is covered by your life insurance. The primary benefit of this plan is to provide you with a steady monthly income post-retirement.
4. Guaranteed Period Annuity
A guaranteed period annuity policy provides you with a predetermined payout for a specific duration. This duration can be anything, maybe 10 or 20 years. The best part of this retirement plan is that these payouts are guaranteed even in the case of the policyholder’s passing away.
5. Annuity Certain
An annuity is considered one of the best retirement plans for a guaranteed pension. Under this pension plan, you can pay a single or regular premium. In return, you receive a fixed, regular payout from the insurer regardless of whether the policyholder is alive or not.
6. Life Annuity
When you opt for a life annuity plan, you receive a pension amount until the end of your life. Another noteworthy point is that if you include your spouse in the plan, then he or she will receive the annuity continuously even after your demise. This plan can help you in securing the financial future of your spouse, especially if they are dependent on you.
7. Pension Funds
A pension fund is a financial instrument designed to help individuals save for their retirement. By investing a specific amount regularly in pension funds, you can build a significant corpus over time. These accumulated funds can be further invested, and you can even manage your pension benefits through different schemes. These funds are handled by professional fund managers to grow your retirement savings.
8. National Pension Scheme (NPS)
NPS is a government-backed scheme available for Indian citizens, including NRIs. Under this scheme, you invest during your working years to accumulate funds for your retirement planning. These funds are managed by professional fund managers, providing you with market-linked returns and tax benefits.
9. Pension Plans Under Mutual Funds
Pension plans with mutual fund schemes provide both liquidity and tax exemption. It allows you to create wealth for your retirement planning by investing in mutual funds. However, it is essential to keep in mind that there are different lock-ins depending on the scheme you decide to invest in.
10. Pension Plans Under Post Office Schemes
Post office pension plans are government-backed schemes for small savings. It provides you with a reliable income stream after your retirement. These schemes are a safe and reliable option for conservative investors. Investing regularly in it can help you accumulate a substantial amount of tax-free retirement corpus over time.
Reasons Why You Should Get A Pension Plan
A pension plan is necessary for securing your future financial stability post-retirement. A few reasons why you should get a pension plan are:
1. Guaranteed Pension Income
Pension plans provide you with a guaranteed income flow after retirement. For example, in immediate annuities, you can start receiving payouts as soon as you retire, providing you with peace from financial worries.
2. Tax-Efficiency
Pension plans offer you tax benefits with a deductible limit of INR 1,50,000 under section 80C of the Indian Income Tax Act. Additionally, for certain plans, the partial withdrawal or lump sum upon maturity can also be partially or fully tax-exempted.
3. Inculcates A Savings Habit
Pension plans are designed to encourage a regular saving habit by paying premiums periodically. So, if you start early, during your 20s or 30s, you will have a substantial amount of retirement corpus by the time you attain your ideal retirement age.
4. Long-Term Gain From The Magic Of Compounding
Compounding is when your earned interest is reinvested, and it helps you generate additional returns over time. With the power of compounding, you earn interest on both your principal and the previously earned interest. For example, if you start saving INR 5,000 per month when you are 25, you will have approx INR 78 lakh more in your funds by the age of 60 than when you start to save in your 40s.
5. Offers A Flexible And Scalable Investment Plan Along With Insurance
Many pension plans allow you to choose an investment strategy with your savings, depending on your risk appetite. Some plans even offer you an insurance plan as an additional benefit to ensure financial security for your retirement years.
6. Safeguards The Interests Of Your Loved Ones
Pension plans protect your loved ones financially, even when you are gone. You can do so by nominating a family member or dependent to receive the retirement corpus in the event of your death. Some popular pension plans in India are listed below:
- ABSLI Wealth Smart Plus Plan
- Bajaj Allianz LongLife Goal Plan
- Canara HSBC iSelect GFP- LTI with ROP
- HDFC Click2Wealth Plan
- ICICI Pru Guaranteed Pension Plan
- LIC New Jeevan Shanti Plan
Things To Remember Before Buying A Pension Plan
Here are some of the things you must keep in mind when investing in a pension plan:
1. Understand Your Needs
A pension plan is supposed to provide financial security in retirement. When you select a pension plan, you will have options based on your specific needs, like spouse coverage, yearly regular income, or the return of paid premiums of the policy. Thus, you must understand your specific needs and choose wisely.
2. Flexibility
Search for pension plans that have flexible payment modes or options for early withdrawal as well, especially in the case of irregular income. Pension plans that give you the option to pay in additional contributions or withdraw money anytime will be value-adding in the long run.
3. Annuity Rate or Return
You will need to compare Annuity rates across pension plan providers to get the guaranteed income you are looking for. Some pension plans offer multiple investment options depending on your risk appetite. You will need to evaluate how the return of the pension plan determines your monthly income/required contributions.
4. Vesting Age
Vesting age refers to the age at which you petition to start or collect the pension. You must ensure there is no discrepancy between the retirement date and the vesting age. Some plans start at age 60 but also take care of early retirees. Multiple pension plans can provide you with maximum flexibility and coverage.
Pension Plans Vs. Other Retirement Options In India
Retirement planning in India isn’t limited to just pension plans anymore. While traditional pension schemes offer steady post-retirement income, several other options like the National Pension System (NPS), Public Provident Fund (PPF), Employees' Provident Fund (EPF), mutual funds, and fixed deposits also play a key role.
This section compares these choices on key factors such as returns, tax benefits, risk, and liquidity—helping you understand which mix of options can best secure your golden years
| Investment Options | Return And Risks | Tax Benefits | Ideal For |
| Pension Plans | Moderate returns, low to moderate risk | Up To INR 1.5L under Sec 80CC2 | Those wanting fixed post-retirement income. |
| NPS | Market + Fixed returns, moderate risk | Up To INR 2L (sec 80CCD (1) + *)CCD(1B)) | Salaried individuals with long term goals |
| PPF | Fixed returns (~7–8%), low risk | Up to INR 1.5L under Sec 80C3 | Conservative investors seeking safe, long-term savings |
| Mutual Funds (Retirement Focused) | Market-linked returns, high risk | If ELSS – under Sec 80C (INR 1.5L) | Investors with higher risk appetite & long horizon |
Conclusion
Investing in a pension plan is one of the most practical and secure options for your retirement-focused financial planning. It not only offers you guaranteed pension and tax benefits but also builds a savings habit and provides financial protection.
If you are looking for a platform where you can start saving for your retirement, sign up with Grip Invest today. It is an intuitive and beginner-friendly investment platform that allows you to invest in a wide range of investment avenues, including corporate bonds and other debt instruments.
Frequently Asked Questions On Pension Plans
1. What is the benefit of a pension scheme?
The benefits of pension schemes include financial security post-retirement, tax benefits, compound savings, scalable investment options, and encouraging you to save regularly for your retirement.
2. Is a pension scheme a good or bad investment?
Deciding whether a pension scheme is a good or a bad investment depends on your individual financial goals and needs. For retirement planning, experts suggest including pension plans in your investment portfolio to diversify your investment and balance risk and returns.
3. What is the disadvantage of a pension?
No investment avenue is risk-free, even a pension. Some disadvantages of pension plans can include a lack of liquidity, limited returns, limited control, limited growth, annuity limitations, and taxes on partial withdrawals.
4. Can I withdraw money from a pension plan before retirement?
It is possible to take an early withdrawal from pension plans. However, this will result in a lesser amount from your pension or pension benefits. Partial withdrawals may also be permitted for specific situations, but you will need to check your plan to see what is permitted first.
5. Is the pension amount taxable in India?
Pension income is taxable under the head of salary in your ITR. In the provisions of taxation, an uncommuted pension is treated as salary under the Income Tax Act, 1961. Therefore, pensioners are required to file an income tax return.
6. How much should I invest in a pension plan monthly?
Begin by investing at least Rs. 50,000 per month in the NPS. Decide on your return target: Expecting an annual return of 12% over the next 20 years from now to end up with a corpus of Rs 5 crore.
7. What is the best pension plan in India?
The best pension plans 2025 are HDFC Life Click 2 Retire, Max Life Guaranteed Lifetime Income Plan, and SBI Life Saral Retirement Saver. The best pension scheme depends on your needs, risk appetite, and planned retirement goals.
References:
1. Max Life Insurance, Accessed from: https://www.maxlifeinsurance.com/iris-india-retirement-study-index
2. Clear Tax, accessed from: https://cleartax.in/s/section-80ccc#:~:text=Section%2080CCC%20of%20the%20Income,and%20Section%2080CCD(1)
3. ICICI Bank, accessed from: https://www.icicibank.com/blogs/taxation/ppf-account-benefits-and-tax-exemption#:~:text=One%20of%20the%20investment%20plans,in%20a%20single%20financial%20year.
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