Guaranteed Income Plan vs NPS: Which one should you choose?

Retirement is an important phase of life for working individuals. Investing in a retirement plan well in advance is essential to lead a peaceful and stress-free life. A guaranteed income plan and the National Pension Scheme are two of the investment options that allow tax-free investments and a regular income after retirement. However, choosing a plan between the two can be difficult as both plans have their distinct benefits and risks.

Here is some key information about both the plans for you to decide which is better.

A guaranteed income plan is a traditional plan that provides general insurance coverage along with guaranteed earnings in the form of periodic pay-outs, generally after retirement. The plans are offered by various insurance companies, and the frequency of pay-outs of the guaranteed earnings can be chosen by the policy subscriber.

A guaranteed income plan offers maturity proceeds (after completion of the policy term) and pay out benefit to the policy’s nominee (s) in the event of the policy holder’s unfortunate demise.

The sum assured is a percentage of the main corpus which is received in regular pay-outs. The term during which the regular pay-outs will be made can also be chosen by the policy subscriber.

Further, a guaranteed income plan entitles the policy subscriber to bonuses upon maturity of the plan. The terms are variable and are generally of 10 to 30 years.

All persons in the age group of 18 to 60 years can purchase a guaranteed income plan.

Tax exemption on premiums paid is available under the sections 80C and 10D of the Income Tax Act, 1961. These exemptions are also available on the maturity proceeds, after completion of the policy term.

National Pension System (NPS) is a retirement benefit scheme backed by the government of India. The scheme encourages subscribers to make regular investments during their employment to facilitate a regular income post retirement.

An NPS account matures when the subscriber turns 60 years of age. After that, the subscriber can take out a certain percentage of the corpus and the remaining amount is paid as monthly pension post your retirement. It is compulsory to keep 40 percent of the corpus for the regular payment of pension.

Subscribers can make partial withdrawals after 10 years of joining the NPS. The withdrawals should not exceed 25 percent of the contributions made by the subscriber excluding contributions made by employer, if any.

Any Indian citizen of the age between 18 and 60 years can open an NPS account.

Tax exemption of Rs 1,50,000 under section 80C of the Income Tax Act is allowed on contributions made towards NPS. Further, additional tax exemption of up to Rs 50,000 is also allowed under section 80CCD (1B) over the existing limit.