PENSION PLAN

A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement. In many ways, a pension plan is a method in which an employee transfers part of his or her current income stream toward retirement income. There are two main types of pension plans: defined-benefit plans and defined-contribution plans.

In a defined-benefit plan, the employer guarantees that the employee will receive a definite amount of benefit upon retirement, regardless of the performance of the underlying investment pool.

Economic prosperity has given more disposable income in the hands of Indians while better healthcare has improved their life expectancy significantly. Today, an average Indian lives well beyond the retirement age of 60 years. While this should be good news for all, people unprepared for retirement will find themselves in quite a fix. More people are now starting to realise the importance of retirement planning and the need to be self-dependent even in their old age.

A survey done in late 2008 by Sun Life Financial revealed that when it comes to retirement planning, only about 4-5 per cent of the Indian working population, mainly government employees, are covered by a pension plan. The rest depend on their children or their savings for post-retirement life. The average Indian also looks for a long working life and estiates the corpus required for post-retirement life to be 100 times their monthly household income at the time of retiring.
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