IT PAYS. Pension and annuity products help cut tax liability during earning years | Photo Credit: triloks

In 1950, life expectancy in India was about 41 years, which increased to over 70 years by 2023. The increased life expectancy also means that many Indians will outrun their active occupational age. They can possibly expect to live 20–30 years as a retiree, without the certainty of regular employment income.

Meanwhile, costs have increased too, thanks to inflation. A spend of ₹100 today may fetch you real value of barely ₹45–50 after 20 years, assuming an average inflation rate of 3.5–4 per cent. For retirees, it can prove a double whammy — lack of regular income even as inflation erodes purchasing power.

Not to mention, healthcare and living expenses increase with advancing age. Besides, to fulfil retirement goals such as going on a foreign vacation or tending to a long-neglected hobby, you may have to deploy your savings.

Consequently, the income needed when you are out of regular employment would be materially higher than your current monthly expenditure, irrespective of lifestyle expectations. You may need a higher income, say, 20 years on to maintain today’s standard of living.

Rising life expectancy, volatile financial markets, and persistent inflation are compelling Indians to rethink retirement strategies. People are realising that banking on wealth and assets alone to meet their retirement expenditure may not be prudent. Additionally, reliable income flows are needed to bring certainty in life and meet day-to-day financial requirements in the retirement years.

Reliable income flow

Traditionally, many individuals have approached retirement with an accumulation mindset. Their strategy is to build a financial corpus through fixed deposits and/or market-linked instruments. Some people also acquire real estate with the hope of deriving passive income from it.

These assets, however, expose retirees to sequencing risk and market volatility precisely when income stability is most critical.

Real estate is contingent on demand-supply equations and the income may be uneven. Fixed deposits can provide reliable interest income but may only be suitable for the short or medium term. Besides, in most cases, income from such wealth-building sources is fully taxable.

Pre-decided flows through annuities or guaranteed benefits in retirement can provide you peace of mind with the knowledge that you have a stable flow of funds even if your other sources get disrupted. Regular income flows — quarterly or monthly — can act as a substitute for employment income.

Enter non-participating guaranteed income plans, pension products, and annuity solutions from life insurers. These aim to provide fixed cash flows for life and ensure adequate and stable income. Annuity products turn savings into regular monthly or periodic payments for life, regardless of market changes.

Policyholders can opt for inflation-adjusted annuities, where payouts increase by a pre-defined percentage — say 3 or 5 per cent — at regular intervals. Some options allow you to link the increase in payouts to inflation indices such as the Consumer Price Index (CPI), to ensure it is in line with the rising cost of living. This feature is particularly relevant in India, where the absence of consistent social security leaves people vulnerable to even moderate inflation.

Premiums paid toward eligible pension and annuity products qualify for tax benefits under the old tax regime. It helps individuals reduce their tax liability during their earning years. Additionally, proceeds from many guaranteed annuity and insurance-based retirement products are exempt from tax, subject to prescribed conditions. It improves post-tax income, an often overlooked but critical component of retirement planning.

Remote support

For elder citizens facing mobility challenges due to age and health-related issues, many life insurers now offer digital onboarding, policy servicing, and payout tracking. Beneficiaries can manage the policies independently, from the comfort of home.

Embedded life cover

After the policyholder’s lifetime, the life insurance component of the guaranteed plans ensure that the family continues to receive benefits, either as a lump sum or continued income. Here, retirement planning is integrated into a comprehensive risk management framework that includes financial protection for the whole household.

Guaranteed retirement plans from life insurers immunise your long-term financial security against disruptions. You can look forward to a worry-free and peaceful retired life, regardless of market conditions.

(The writers are members of Insurance Awareness Committee)

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Published on April 27, 2026