Retirement Planning for Self-Employed Professionals should be there, as they don’t have the employer sponsored retirement benefits and it is their own responsibility to built safe future of their own. Retirement planning not only secure the post retirement phase but it assure tax benefits and assured income. With right strategy, tools and trend self employed professional can build a corpus for retirement fund.
A pension is an amount of money that is given after retirement. Pension plan is the retirement fund that is usually set up by an employer and/ or employee contribution. But in case of self employed professionals both the phase of pension viz. accumulation and distribution need to take care by them, again understanding pension plan includes investment flexibility, liquidity and tax treatment.
Pension Plans for Non-Salaried Professionals
National Pension Plan (NPS)
The Pension Fund Regulatory and Development Authority (PFRDA) regulate and administer NPS under The PFRDA Act, 2013. NPS is backed by Central Government of India. It is one of the option to opt for “Retirement Planning for Self-Employed Professionals“
NPS is market linked defined contribution scheme that help you save for your retirement. It is one of the most efficient ways of boosting your retirement income and saving tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way. It is the best retirement plan option for self employed professionals in India, you get the options to invest in stocks and equity related instruments capped up to 75%, if you are not risk taker you can invest in fixed income securities and corporate bond or invest in Central or State Government Bonds and high risk options are available like invest in REITs, InVITs and mortgage based securities at low cost and expert fund management in all products. Your contribution to NPS also qualify for tax deduction under section 80C and 80CCD (1B), making it highly tax efficient.
Atal Pension Yojana (APY)
The Atal Pension Yojana, is a government back pension scheme that ensures financial security especially for under privileged and the worker in unorganized sector.
APY is being administered by PFRDA and the scheme is implemented through post office, public sector bank, private bank, co-operative bank, small finance bank, payment bank.
Atal Pension Yojana is a voluntary contribution based scheme, under which Central Government guaranteed minimum pension of ₹ 1000/-, or ₹2000/-, or ₹ 3000/-, or ₹ 4000/-, or ₹ 5000/- per month depending upon the contribution chosen after the age of 60. After the subscriber’s demises, the spouse of the subscriber shall be entitled to receive the pension until the death of the spouse. After both demises the nominee will get the pension wealth, as accumulated by the subscriber till the age 60.
If any subscriber chooses to voluntarily exist Atal Pension Yojana before 60, he shall only be refund made by him to the Atal Pension Yojana along with net actual interest earned on his contribution after deducting accounts maintains charges and Government co – contribution and interest earned on Government Contribution is not refunded. Yet another option to opt for “Retirement Planning for Self-Employed Professionals“
Public Provident Fund
Public Provident fund backed by the Government of India and a long term saving instrument that offers guaranteed returns with attractive tax benefits along with capital protection, long term wealth creation and tax free returns.
Public Provident Fund is a 15-years deposit account that can be opened with post office or designated bank. A person can hold only one Public Provident fund account. It is long term retirement plan for those individuals who may not be covered by provident funds of their employer or self employed. Minimum amount that needs to be deposited in this account is ₹ 500/- and the maximum is ₹ 1,50,000/- and can be paid in one lump sum or in installment not exceeding 12 times in a financial year, One withdrawal is allowed after 7th financial year. In the event of death of the account holder the balance in the account shall be paid to the nominee or legal heir as the case may be. A deduction under section 80C is allowed and the interest is completely free. Its an old option ever for “Retirement Planning for Self-Employed Professionals“
Unit Linked Pension Plan
Unit Link Pension Plan combines the benefits of investment and pension savings. Certain portion of premium is allocated towards investment in debt, equity or balanced fund depending upon your risk tolerance for retirement corpus and other portion towards retirement saving. Unit Linked Pension Plan is market linked product and offer flexibility to switch and tweak their debt and equity fund profiles. Unit Linked Pension Plan build retirement corpus over time and provides post retirement financial securities. Partial withdrawals are allowed after certain period which can be used for emergencies. Upon maturity Unit Linked Pension Plan provides option for annuity payment, creating a post retirement income.
Unit Linked Pension Plan offer certain tax advantage which appeal for retirement savings. Premium paid towards Unit Linked Pension Plan eligible for deduction under section 80CCC, which is part of ₹1,50,000/- limit under section 80C. 60% of the corpus can be withdrawn in lump sum and 40% be used as annuity purchase. Certain tax free partial withdraw is allowed after lock in period.
Unit Link Pension Plan provides a range of financial goal through market linked investments which allow your corpus to grow with the option to switch funds as per your risk preference. With exposure to equity it has the potential to provide inflation adjusted return and regular premium payment encourage disciplined saving for retirement. Unit Link Pension Plan allows you to designate beneficiaries as legacy. This option could be opt “Retirement Planning for Self-Employed Professionals” if you want your corpus to grow with market.
Conclusion
In case of self employed professionals both the phase of pension viz. accumulation and distribution need to take care by them, again understanding pension plan includes investment flexibility, liquidity and tax treatment. Retirement Planning for Self-Employed Professionals should be there, as they don’t have the employer sponsored retirement benefits and it is their own responsibility to built safe future of their own.
Disclaimer
This blog is for general informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The information is based on publicly available sources and market understanding at the time of writing and may change due to global developments. Past performance of markets during geopolitical events does not guarantee future results. Readers are encouraged to conduct their own research and consult qualified professionals before making investment decisions. Finance with Prakash does not provide any assurance regarding outcomes based on this information.