What Are Retirement Benefits?
Retirement benefits are monetary and welfare provisions provided to persons upon completion of their working careers. The benefits are supposed to ensure that retirees live a comfortable life while taking care of essential needs like healthcare, daily living, and future financial security. As compared to the monthly income earned during active working life, retirement benefits ensure a stable safety net, ensuring individuals achieve financial freedom following decades of working life.
The most common examples of retirement plans include gratuities, provident funds, life insurance, annuities, and medical coverage. They not only cover financial needs, but also guard against unexpected things such as medical emergencies .
Core Components of Retirement Benefits
Some of the components of retirement benefits are:
Leave Encashment
If you have unused leaves to your credit, you can convert them into a monetary value and receive the leave encashment benefit on retirement.
Retirement gratuity
Gratuity is a lump sum paid by the employer, calculated based on the last drawn paycheck and the number of years worked. It provides a benefit to employees for their service .
Provident Fund (PF) Savings
A significant retirement pension plan, PF, involves constant contributions from the employee and employer. Upon retirement, the saved funds, together with interest, are paid out, providing income flow and financial independence.
Annuity Plans
Annuity plans provide a fixed, periodic income upon retirement. The benefits of annuity plans are that they can replace your income, helping you meet recurring bills and other financial needs after retirement.
What is the Importance of Retirement Benefits?
Retirement benefits go beyond financial support—they reflect the value and recognition of an individual's lifelong contribution to their profession. A structured retirement plan can offer the following benefits:
- Financial Independence - Retirement benefits enable you to maintain financial independence and support your lifestyle.
- Maintaining Lifestyle - These benefits enable you to keep on enjoying the comforts and habits you've become accustomed to without worrying about money.
- Paying for Healthcare Expenses – Medical expenses rise with age. Retirement income provides a buffer to pay hospital bills, medications, and extended care without exhausting resources.
- Peace of Mind - Above all, retirement benefits eliminate anxiety. With your future financially secure, you will be able to live out your old age comfortably and happily.
Some Retirement Benefits
- More time for loved ones: With improving internet penetration, several processes have been digitised and the digitisation of traditional jobs has brought work into the home. Work has invaded family time which is the reason why most people fail to commit adequate time to the family while working. But after retirement, you can dedicate as much time as you want to your family. You can play with your grandchildren or spend quality time with your spouse and your children. Retirement helps you make up for the lost family time of the younger days.
- Time to follow hobbies: Everyone has a hobby or passion which he/she wants to follow. However, professional and domestic responsibilities do not allow people to undertake tasks they like. It is never too late to try new hobbies and retirement is the best time to take up hobbies. One of the retirement benefits is that you have ample time to undertake long-desired hobbies. Hobbies can be of many types. It could be a simple hobby like playing a musical instrument or an expensive hobby like playing golf. Having adequate resources becomes necessary to follow expensive hobbies. Focus on retirement planning if you have hobbies that require substantial resources.
- Freedom to achieve life goals: Our entire life is spent dreaming about certain life goals. Some dream of roaming around the world while others dream of going back to the village and start farming. Most of the life goals are put on the backburner due to the demands of professional life. Retirement gives you a chance to participate in long-cherished activities. After retirement, you are not bound with time or other limitations and can make the move to achieve your life goals. If your life goal was to live a serene life in the countryside, it would not have been possible to relocate while having a regular job. Retirement gives you the freedom to relocate and participate in soul-satisfying activities. Sometimes, resources become the only limiting factor after retirement. However, retirement planning with an eye on the future can help you accumulate sufficient resources to achieve life goals.
- Option to take up new projects: Many a time there is a difference between what people do and what they would actually love to do. You wanted to be a professional photographer or data analyst but spent your entire life being a chartered accountant. Retirement can be a rebirth for your career. You can start afresh and take up work that you only dreamed of. Working after retirement also provides an additional source of income to supplement your pension income and the retirement corpus. It is not mandatory to change your profession entirely, you can also take up consultancy work related to your prior profession or also work as advisors in the field of your choice. Not everyone wants to switch careers, many people want to continue working in the same profession, but with a reduced workload. You can choose to work in the same sector and easily control the workflow after retirement.
Retirement can be equated to a new life. There are various benefits of retirement, but some drawbacks too. Some retirees experience difficulties after retirement as work gives meaning to their lives. But a bigger issue is exhausting your retirement saving. A number of factors have changed the dynamics of retirement planning.
- Increased life expectancy: Life expectancy has increased substantially in the past few decades. With the rise in life expectancy, the post-retirement phase has increased. People had a post-retirement life of 10-15 years earlier, which has increased to 20-25 years now. A longer retired life results in a strain on the resources. You will need a larger corpus to lead a comfortable life for 20-25 years than would have been needed for 10-15 years. Most people fail to take into account the chances of living a longer life when participating in retirement planning.
- Inflation: One of the biggest mistakes committed by people while retirement planning is to ignore the impact of inflation on the cost of living post-retirement. The value of Rs. 1 lakh will erode substantially till the time you retire. The value of the retirement corpus will deteriorate during the retirement years itself. The effect of inflation should be a central part of any retirement planning. You have to take a futuristic view while investing for retirement as the real return will decrease if inflation inches up. Besides returns, the cost of living increases over time due to inflation. As per estimates, if you have monthly expenses of Rs. 1 lakh at the age of 30, you will need Rs. 6.5 lakh every month to maintain a similar lifestyle at the age of 60.
Due to factors like longer life and inflation, you will have to accumulate a larger retirement corpus. These factors have changed the structure of retirement planning in India. Smart retirement planning has become essential for enjoying the benefits of retirement. The primary aim of retirement planning should be to increase the retirement corpus. The two most basic steps to accumulate a larger amount until retirement is to start early and invest in appropriate investment products.
Tax Benefits on Retirement Income & Savings
The ability to claim tax relief on pensions, retirement funds, and withdrawals is one of the biggest advantages for Indian retirees. Retirees can benefit from predictable cash flows and peace of mind during their retirement years by taking advantage of tax benefits. Let’s understand how retirement benefits are taxed.
Tax exemptions on pension
- Government employees are completely exempt from paying taxes on their commuted pension
- Private sector employees who receive gratuities are exempt from paying taxes on one-third of their commuted value
- In case of private sector employees who do not receive gratuity, half of the commuted pension is exempted.
- Uncommuted pensions are fully taxed except for disability pensions for disabled military personnel.
Tax-free withdrawals (PPF, EPF maturity, NPS partial withdrawal)
- Contributions, interest, and maturity proceeds are all tax-exempt under the Public Provident Fund's (PPF) EEE (Exempt-Exempt-Exempt) structure.
- According to Section 10(25) of the Income Tax Act, the Employee Provident Fund (EPF) maturity, which includes both contributions and interest, is exempt subject to certain conditions.
- Under certain restrictions, the National Pension System (NPS) allows tax-free partial withdrawals and commutation on maturity.
Retirement Benefits for Different Segments
Retirement benefits in India ensure economic security after contributing for years. They differ in the type of employment and are influenced by government policy, taxation etc. They guarantee stability, and independence to retirees. Let us understand the benefits of retirement plans depending on the different segments mentioned below:
Benefits for Government Employees
New, existing and retired government employees (meeting specified eligibility criteria) can opt for the recently added Unified Pension Scheme (UPS) under NPS from April 1, 2025. UPS promises a guaranteed pension—generally about 50% of mean basic pay for the previous 12 months immediately prior to superannuation—if the employee has worked for at least 25 years of qualifying service1. There is also a one-way change facility with a possibility of shifting from UPS to NPS (National Pension Scheme) within specified timelines and subject to specific terms and conditions.
Benefits for Private Sector Employees
Employees in the private sector depend mainly on the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS), 1995. Contributions towards EPF (12% by employer and employee) build a corpus. EPS, in turn, pays monthly pensions to its eligible members and superannuation, early and family pension. The government also guarantees a minimum of ₹1,000 per month as pension under EPS through budgetary support
Benefits for Self-Employed Individuals
For self-employed individuals the National Pension Scheme or PM-SYM (Pradhan Mantri Shram Yogi Maan-Dhan Yojana) can help. Contributions under PM-SYM are different (₹55–₹200 per month based on entry age), equally shared by the central government. At age 60, beneficiaries get a guaranteed ₹3,000 a month, and if a beneficiary dies, the surviving spouse would receive 50% of that pension.2 The benefits of the scheme is applicable for individuals who meet the specified eligibility criteria.
International Retirement Benefits (NRIs, expats)
Non-Resident Indians (NRIs) may become members of NPS through NRE/NRO accounts. Membership involves a minimum contribution of ₹500 to open the account and a minimum of ₹6,000 per year or ₹500 per contribution. The money is invested in a mix of equity, corporate bonds, government securities, and other instruments. The maximum 60% can be withdrawn as a lump sum at age 60, provided the corpus is above a specified limit and the remaining 40% must be annuitised. NPS provides NRIs with tax relief and options for flexible investments
How to Maximise Your Retirement Benefits?
Retirement planning is essential to make you financially secure in your retirement years. Here's how you can invest for retirement successfully, with the help of government-guaranteed schemes, life insurance plans, etc.
Start early with retirement planning
As you age, the responsibilities will increase which will weigh in on the available funds. Responsibilities are lower in the 20s and 30s but rise exponentially in mid-30s and 40s. You will have to allocate a bulk of resources for children’s education or for parents’ healthcare. It is easier to contribute to pension funds at a younger age. Another major benefit of starting early is the longer time available for the investment to multiply. Compounding boosts returns when investments are left for a longer time as the interest earned on the initial investment starts to generate returns too.
Diversify income sources (pension + investment-oriented plans)
Relying solely on one source of income may not be sufficient for a financially secure retirement. Life insurance companies in India offer a range of solutions that combine protection with retirement planning. You can consider:
Unit Linked Insurance Plans (ULIPs) designed for long-term savings, which offer life cover along with market-linked returns. These plans help build a retirement corpus and may allow partial withdrawals or conversion to annuity options at vesting.
Deferred Annuity Plans, which provide guaranteed* income post-retirement. These plans accumulate premiums during the deferment period and begin regular payouts after vesting, offering financial stability and insurance protection.
By integrating these options, policyholders can create a diversified retirement strategy that balances growth potential with income certainty.
Use tax-saving instruments wisely
You can boost your retirement corpus using tax-saving instruments. Investments in deferred annuity plans from life insurance companies, NPS, Atal Pension Yojana (APY) can help with retirement planning while saving taxes too.
By beginning early, diversifying sources of income, using tax-saving vehicles you can maximise your retirement benefit and achieve a financially secure future.
Key Takeaways
- There are different types of retirement benefits available to plan for a comfortable life post-retirement.
- Retirement planning is important to create a financial corpus that would help you meet your expenses.
- Understand the tax implications when building a retirement fund and also on the retirement benefits.
- Retirement benefits might differ depending on your occupation and residential status.
- To start retirement planning, start early, diversify, factor in inflation, and plan your taxes.
Conclusion
The benefits of market-linked returns and compounding offered by such pension plans can be availed only by starting early in life provided you have planned your investment to meet your long term life goals. Delaying retirement planning can have a detrimental impact on the final outcome. You can overcome the negative impacts of inflation and accumulate funds for a longer post-retirement life with the right pension plan. A regular income in the post-retirement phase will help you lead a fulfilling and content life.
FAQs
Can NRIs get retirement benefits in India?
Yes, NRIs can buy life insurance annuity plans through NRE/NRO accounts and get retirement benefits in India.
What are the benefits of retirement planning?
Retirement planning provides financial freedom, helps meet lifestyle costs, can cover healthcare expenses, and ensures peace of mind. It allows for the accumulation of a corpus to live in comfort and security post-retirement.
What is included in retirement benefits?
Retirement benefits usually consist of gratuity, provident fund accumulation, annuities, and leave encashment. They ensure constant income, financial security, and a cushion against unexpected costs.
Are retirement benefits taxable?
Certain retirement benefits are exempt from tax, e.g., PPF, EPF maturity amount, and partial withdrawal from NPS subject to certain terms and conditions. Uncommuted pensions are normally taxable, although certain exemptions, like disability pensions, are an exception.
Sources:
- https://www.pfrda.org.in/web/pfrda/schemes/national-pension-system/unified-pension-scheme
- https://eshram.gov.in/social-security-welfare-schemes
