5 benefits to know about investment in Pension Plan.
Tax Credit
A participant is entitled under the Income Tax law to receive tax credit on his contributions in the Pension Fund based on the effective tax rate. Maximum contribution that can be made by a participant for tax credit in a fiscal year is 20% of income or Rs. 1 million whichever is lower.
Convenience and Flexibility
A participant is entitled under the Income Tax law to receive tax credit on his contributions in the Pension Fund based on the effective tax rate. Maximum contribution that can be made by a participant for tax credit in a fiscal year is 20% of income or Rs. 1 million whichever is lower.
Protection
Every participant gets a free way to choose another pension company and all his or her savings in the pension fund would be moved to that company. The participant’s assets are protected by way of trust, with oversight of trustee.
Portability
The pension account will still be with the participant even if the job is switched, hence portable. Asset contributions can be resumed through new employer, personal contribution or both at any time. Moreover one can switch to/from Pension Fund Manager as well as sub-funds without paying any charges or penalty.
Tax benefit
- At retirement, a participant shall be entitled to receive up to 50% of the total accumulated balance in his individual pension account as a lump sum and such withdrawal shall be tax free.
- One can also withdraw in excess of 50% subject to payment of tax on such excess amount. From the remaining balance, an investor can either buy an approved income payment plan from a registered pension fund manager of own choice; or an approved annuity plan from a life insurance company in order to receive post-retirement monthly income.
- Tax free withdrawal in case of death or disability before retirement
Approved Annuity Plan
An approved annuity plan is the plan approved by the SECP and offered by the life insurance companies authorized by the SECP. An annuity by its very nature can be called a financial plan that makes a regular stream of payments to the annuity holder. A participant is required to deposit a lump-sum amount with the insurance company to purchase an approved annuity plan. Upon receipt of the amount, the life insurance company shall start paying regular income to the participant in accordance with the plan he has selected.
Approved Income Payment Plan
If a participant can afford to assume risk in expectation of returns that are above moderate, he should buy an approved income payment plan. The expectation of above moderate returns implies it can work both ways i.e. a participant can experience lower payments of income as well as the returns can be above moderate.
