Government Employees Pension Scheme - Retirement Benefits

People often desire to do things in retirement that they have never been able to do before, including spending more time with friends and family or going on vacations that would be difficult to arrange without appropriate retirement planning. The only way to guarantee that you can retain a high quality of living while pursuing your ambitions is through pension plans, often known as retirement plans. Continue reading to learn more about the pension plans for public employees.

Government Employees Pension Scheme (GEPS)  

The Government Employees Pension Scheme (GEPS) is a pension or retirement plan for government employees in India. It is a defined benefit plan, which means that the pension amount is predetermined based on a formula that considers the employee's length of service and final average salary. The GEPS provides government employees retirement, invalidity, and family pension benefits. It is managed by the Government of India and relevant state governments. 

The minimum eligible time for receiving a pension is ten years. After completing at least ten years of qualifying service, a Central Government employee who retires in conformity with the Pension Rules is eligible to receive a pension.  When it comes to Family Pension, the widow is qualified to receive the benefit upon the passing of her spouse after completing one year of continuous service or even earlier if the Government employee has been examined by the relevant Medical Authority and found to be fit for Government service. 

Pensions are based on payments, last basic pay, average emoluments, or the average basic income received during the previous ten months of service, whichever is more advantageous. The pension is equal to 50% of the salary or the average emoluments, whichever is more beneficial. Pension is paid up to and including the date of death. 

There are two primary pension schemes under the Government Employees Pension Scheme:

1. Old Pension Scheme: The Old Pension Scheme is the traditional pension scheme in place before introducing the New Pension Scheme (NPS) in 2004. Under this scheme, government employees are entitled to a fixed percentage of their last drawn salary as a pension, depending on the number of years of service. The age of superannuation under this scheme is 60 years. The government fully funds the pension amount, and there is no contribution from the employees themselves. 
2. New Pension Scheme (NPS): The New Pension Scheme, also known as the National Pension System, was introduced in 2004 as a voluntary pension scheme for government employees. It is a defined contribution plan, meaning that the government and the employee each contribute a specified percentage of the employee's salary to the pension fund. The funds contributed by the employee and the government are invested in various financial instruments, such as stocks, bonds, and government securities, to generate returns. The accumulated corpus at retirement determines the pension amount in the NPS. The age of superannuation under this scheme is also 60 years.

The NPS provides a range of investment options for employees to choose from and allows them to switch between them during their employment. It also offers flexibility regarding withdrawal options, allowing employees to withdraw a certain percentage of the accumulated corpus as a lump sum at retirement, with the remaining amount being used to purchase an annuity for a regular pension.

The NPS aims to provide market-linked returns and give employees more control over their pension savings. However, it also carries some investment risk, as the returns depend on the underlying investments' performance. 

Employees who joined government service before 2004 can either continue with the Old Pension Scheme or switch to the NPS. The choice of pension scheme may depend on factors such as individual financial goals, risk appetite, and preferences for control and flexibility over pension savings.

The fundamental difference between the old and new plans is that the old ones were predetermined, whilst investment returns solely determine the new ones, accumulations made up to retirement age, and the type and value of annuities.

Service Gratuity

If a retiring government employee's total qualifying service is less than ten years, they are eligible for service gratuity (rather than pension). The allowable sum is equal to one-half of a month's pay, last drawn, plus DA for each completed six-month qualifying service term. This one-time lump sum payment is made in addition to the retirement gratuity and is separate from it.

Retirement Gratuity

The retiring government employee will receive this. To be eligible for this one-time lump sum payment, you must have at least 5 years of qualifying service and be able to collect service bonuses or pensions. The retirement gratuity is calculated as 1/4 of a month's Basic Pay plus any Dearness Allowance withheld on the retirement date for each completed six-month qualifying service period.  

Death Gratuity

It is a one-time lump sum reward that will be given to the nominee or family member of a government employee who passes away while working. There is no requirement regarding the minimum amount of time the dead employee must have worked. The following rules govern death gratuity entitlement:

*maximum amount admissible - Rs.20 Lakh w.e.f 1.1.2016

Significance of a Pension Plan

Pension plans, usually called retirement plans, are designed to meet your financial needs after retirement. This kind of life insurance plan enables you to guarantee that, after retirement, you will get a consistent annuity at regular intervals. Some retirement plans include maturity benefits, which are one-time payouts made at the end of the policy term. Retirement plans provide life insurance and financial assistance to your family in the event of your untimely death during the policy's term because they are a sort of life insurance. Through compounding, retirement plans assist you in increasing your corpus.

Retirement Plan Benefits

The following are the perks of having a retirement plan:

• Financial Stability: Retirement plans give you the advantage of post-retirement guaranteed income, which may take the form of a maturity benefit or recurring payments. 
• Tax Benefits: Retirement plans offer tax advantages since contributions made to them are excluded from taxation under Section 80C of the Income Tax Act of 1961. Tax benefits can help individuals maximize their savings and reduce their liabilities.
• Insurance Benefits: Retirement plans are a type of life insurance that offers your family financial security in the event of your untimely passing while the policy is still in force. 
• Benefits of Compounding: Retirement plans often have a compounding feature that enables you to grow your corpus. Your profits will be better if you continue to invest in retirement plans for a more extended period.

Overall, retirement plans offer individuals financial security, tax advantages, and flexibility in retirement savings. They are essential for individuals to ensure a comfortable and financially secure retirement. If you wish to buy a retirement plan, contact us today. We pledge to make your retirement plan purchase seamless.

FAQs

1. Is investing in retirement plans a wise idea?

Among all fixed-income tax instruments, it gives the most significant post-tax returns. Only early retirees and elderly persons, however, are eligible for this scheme. Every earner should consider retirement planning carefully so they can maintain financial independence in their later years.

2. How is a retirement gratuity paid?

The retirement gratuity is calculated as 1/4 of a month's Basic Pay plus any Dearness Allowance withheld on the date of retirement for each completed six-month qualifying service period. The gratuity's minimum amount is not specified.

3. What distinguishes retirement from a gratuity?

A gratuity is nothing more than a gift given by an employer to a worker in gratitude for the latter's efforts. On the other hand, a pension is a retirement scheme in which the employer makes a predetermined investment to ensure that the employee will be paid at retirement. 

4. How does death gratuity work?

Pension Rules 2023 state that if a retired government employee passes away within five years of the date of retirement and without collecting a sum equivalent to 12 times his emoluments (i.e., his gratuity or pension), his family would be given a residuary gratuity in the amount of the shortfall.

5. What is the purpose of a Pension Plan?

A pension plan aims to ensure that individuals have sufficient income to support themselves during their retirement when they are no longer earning a regular salary. It helps individuals maintain their standard of living, meet their financial needs, and enjoy a comfortable retirement.

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