MUMBAI: Pension plans offered by life insurance companies haven't gained momentum compared with the National Pension System (NPS), Employees' Provident Fund (EPF) and other instruments, partly due to lack of liquidity and poor returns. "Unlike NPS and EPF, there is no open market option available for policyholders investing in pension plans of insurance companies," said Rajeev Kumar, chief financial officer at Bharti Axa Life Insurance. "An insurer offers two types of pension plans — immediate annuity and deferred annuity.In the first, the retirement corpus a person has saved over his lifetime is used to provide a pension on retirement.A lump sum is invested so as to start immediate monthly pension payments. "This makes other instruments like NPS more attractive where people have the option of partial withdrawals. Also, the monthly annuity payable in both plan types is taxable.The tax laws also treat pension income unfavourably, making it extremely tax inefficient as the entire income is taxable as per the pensioner's tax slab, thus discouraging a person from buying a pension plan.

Source: Economic Times July 03, 2016 22:30 UTC