NPS vs pension plans from insurance companies: which is better?

Retirement planning is essential if you want to create a substantial corpus to last you for your life. When doing so, choosing a suitable investment avenue is also crucial.

There are different types of retirement saving solutions available in the market. Two of the most popular of them are the National Pension System (NPS) and life insurance pension plans. Which do you think is better?

What is the NPS scheme?

The NPS scheme is a retirement scheme which helps you create a retirement corpus and also receive pensions from the accumulated corpus. Your investments to the NPS scheme online are allocated to market-linked funds for maximum returns.

What are life insurance pension plans?

Life insurance pension plans are retirement oriented plans which come in two variants. The deferred pension plan is one which helps you accumulate a retirement corpus. The immediate annuity plan, on the other hand, pays lifetime annuities immediately after you buy the plan. You can choose either or both of these plans to plan your retirement.

NPS v/s life insurance pension plans – which is better?

To find out which scheme is a better alternative, let’s have a look at the similarities and differences between the two –

• Similarities 

• Both NPS and deferred pension plans help in the creation of a retirement corpus

• Market linked returns can be availed under NPS and unit-linked pension plans

• Lifelong pensions are paid by both NPS and immediate annuity plans

• You can commute up to 60% of the accumulated corpus under both the schemes

• Partial withdrawals are allowed under both the schemes

• Tax benefit on the amount invested and the commuted corpus is available under both the schemes

• The facility of switching is available under both NPS and unit-linked deferred pension plans

• Differences 

• You can withdraw from the NPS scheme online from the third year. Under unit linked deferred pension plans, such withdrawals are allowed from the sixth year

• NPS plans provide an additional tax benefit under Section 80CCD (1B). Moreover, if your employer contributes to the NPS scheme, the additional deduction can be claimed under Section 80 CCD (2) both under the old tax regime and the new tax regime

• You have the choice of selecting and also switching the pension fund manager under NPS. Under unit linked pension plans, the company once selected cannot be changed

Which is better?

The NPS scheme scores points over life insurance pension plans in many aspects. Firstly, the additional tax benefit makes NPS schemes a clear winner. Under the new tax regime, you wouldn’t be able to claim tax benefits if you invest in life insurance pension plans but the NPS scheme would give you such tax benefits if your employer contributes to it. Secondly, access to funds is allowed within a shorter time span in the NPS scheme. Lastly, the facility to change the pension fund manager is an advantage as it allows you to pick the company which gives the maximum returns. Taking these points into consideration, the NPS scheme is a better choice for retirement planning.

To invest in the NPS scheme online you can choose ETMONEY’s best personal finance platform. This best personal finance platform allows you to invest through a computer or through your Smartphone through the ETMONEY app. Moreover, you can invest and complete your KYC formalities online with a minimum of hassles.

So, choose the NPS scheme for building a retirement corpus and invest in it through the best personal finance platform of ETMONEY.