Retirement and Pension Benefits
Why
Retirement and Pension Benefits
In developed and developing nations, the employees are provided
social security based on their service record. In United States of America
(USA), an employee with 40 credits becomes eligible for retirement and pension
benefits. The 40 credits are gained with at least 8 years’ service in USA. At
the time of retirement i.e. age of 60 or above, the employee is retired from
the service and suddenly the earnings fall due to non-payment of salary. The
social security schemes including Employees’ Pension Scheme (EPS), Gratuity,
and other facilities are provided to secure his future keeping in view his
contribution for the economic development of the organization he worked with.
In India, as per the judgement of Central Administrative Tribunal, a Government
employee requires to complete at least 20 years of service to be eligible to
claim the retirement or pensionary benefits.
What to do if no retirement and pension benefits by organizations?
There are various private sector organizations offering retirement
and pension benefits to the employees, but it is also possible that the
organizations make no provision for providing such benefits or make very
insufficient provision for providing retirement and pension benefits. In such
cases, the employee requires more savings for the after retirement period.
There is a separate discipline to study the consequences and investment
patterns i.e. Retirement Planning.
Retirement
Planning:
The amount of pension may be insufficient after retirement because
there is more requirement to tackle the health problems in old age. The harder
the efforts an employee made in his service period, the higher the chances of
his physical and mental disorders in the old age are. It doesn’t mean that the
hard work should not be done, it means that while doing hard work, an employee
should also keep adequate diet, relaxation exercises to stay healthy even after
the retirement. The organizations offer pension to ensure the employees and the
employees work harder without any stress for the old age.
For retirement planning, the financial companies are offering
pension plans in which a person can invest money during the service period and
a corpus is managed by the company for providing pension after the service
period. The computation of expected expenditures after retirement and how much
to save during employment to cover such expected expenditures; is the main
focus of Retirement Planning. The plans offered by the financial companies are
known as pension plans. Anybody can approach LIC, HDFC, SBI, ICICI, and other
banking organizations and get the details about the pension plans of the
concerned organization.
Pension Plans for Earnings:
Each employee, common
citizen of India requires security after the age of 60 and the pension plans
provides not only security but also earnings in the form of interest or return
on investment in the pension plans. Even the Government provides deduction on
income tax payable in case amount is invested in retirement plans i.e. pension
plans. The pension plans with prior planning be fruitful after the retirement
and one get so much benefits. The life becomes financially secure and it
depends upon the requirement of an individual how much he wants to get as
pension, the higher the amount required the higher the amount is required to be
invested in a pension plan.
Benefits at the time of Retirement:
Whenever an employee is retired, various types of benefits are
computed to be provided on the final day of the service i.e. (i) Pension, (ii)
Gratuity, (iii) Payment of Provident Fund (iv) Leave Encashment, (v) Payment of
Group Insurance Scheme, (vi) Travelling Allowance at the time of Retirement,
(vii) Other benefits
(i) Pension:
In India as well as USA and other developed nations, an employee
becomes eligible to get pension after completion of 10 years of service. The
pension rules are framed and notified by the government or non-government
organizations. The amount of pension is computed on the basis of last drawn
salary. In Haryana state, the age of retirement is 58 years for Group A, B, and
C employees and 60 years for Group D employees. The condition for entitlement
of pension is completion of at least 10 years’ service (only for the employees
joined service prior to 1st Jan, 2006). Most of the individuals prefer to
receive partial amount in the form of lump sum and remaining to be invested in
annuities for generating a fixed amount of income to be received as monthly
pension.
Computation of Pension:
For computing the amount of pension, maximum 33 years’ service is
taken into account. In Central Government of India, the minimum pension is
determined at Rs. 9000 per month and maximum up to 50% of the highest pay. The
employee is provided with the option to commute the pension up to 40% and
receive it as a lump sum amount on the date of retirement or within one year of
the retirement. A commutation table is used to compute the lump sum amount to
be provided to the employee. To the extent, pension is commuted, the amount of
monthly pension after retirement is reduced for 15 years from the date of
receipt of the commuted amount. The formula for deriving commuted value of
pension is Commuted factor multiply by 12 and percentage to the extent
pension is commuted up to 40%.
The remaining portion which is not commuted is provided as monthly
pension.
(ii) Gratuity:
As per gratuity act, an employee after completing the 5 years of
service, becomes eligible to get gratuity which is computed as è (Basic Pay + Dearness Allowance)
multiplied by ¼ multiplied by half yearly periods of qualifying service. The
amount of gratuity can be maximum up to Rs. 20 Lacs.
Service Gratuity:
The employees who joined before 1st Jan 2006 and have qualifying
service less than 10 years at the time of retirement, are entitled to get
Service Gratuity apart from Retirement Gratuity. The amount of service gratuity
is paid as one time lump amount equal to the half month’s basic and dearness
allowance for each half year completed in the qualifying service.
(iii) Provident Fund:
During the service, a portion (i.e. 12% or 10%) of the salary of
employee with a contribution by employer are deposited in a provident fund and
at the time of retirement, the amount is received by the employee. The
provident fund is particularly managed by the government to ensure the social
security of the employees. The Provident fund account is either Statutory or
Recognized or Public Provident Fund. The provident fund as savings scheme is
managed in various developed and developing countries including India,
Singapore etc. In India, the provident fund contribution was stopped in most of
the states after implementing the New Pension Scheme (NPS), for example in
Haryana State, after implementing NPS on 1st Jan, 2006, the employees joined
after 1st Jan, 2006 are not entitled to contributed in Provident Fund as they
contribution is made in New Pension Scheme.
Best Pension Plan:
There are a lot of
pension plans and most of the people choose life annuity plan which offers
pension till death of the subscriber. However, the National Pension System has
also become more attractive now-a-days with inclusion of various benefits for
the subscribers. Now the tax is levied only on 20% of the corpus withdrawn on
the maturity of the plan. Each pension plan in India, is regulated under the
Pension Fund Regulatory & Development Authority (PFRDA) and only six
pension fund managers are provided power to maintain the pension funds.
(iv) Leave Encashment:
During the service of an employee, the
employers as well as government offers to credit their leave account with paid
leaves every year on the basis of their working period in the organization. At
the time of retirement, such leaves are encashed and an amount is provided to
the employees.
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