A pension plan is an annuity product which generates income during retirement. At a very high level there are two types of pension plans:
- Immediate annuity plans: These plans start paying fixed annuities from day one. These plans are preferred by investors who receive a large sum as superannuation benefit post retirement. The investors choose to invest the proceeds in a pension plan so as to generate safe and regular income for the rest of his or her life. There are only a few immediate annuity plans in India, such as LIC Jeevan Akshay, ICICI Prudential Immediate Annuity, HDFC Immediate Annuity etc.
- Deferred annuity plans: These plans defer annuity payments till the time, a retirement corpus been accumulated. These plans have an accumulation phase during which investors invest regularly while they are working, and then a distribution phase when they start withdrawing money to meet their income needs during their retirement. Most pension plans products available in India are of the deferred annuity type. These products include the National Pension scheme funds, deferred annuity plans offered by insurance companies (e.g. LIC Jeevan Tarang, LIC Jeevan Nidhi etc.) and pension plans offered by Mutual Funds.