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Wednesday, December 17, 2014

RETIREMENT AND PENSION ?

Written By Admin on December 15, 2014 | Monday, December 15, 2014


RETIREMENT AND PENSION ?

The news in Financial Express :  Reducing the retirement age would be really worrying to aging central government employees if it is true. One of the leading financial daily in India has in its website reported that Central Government is considering a proposal that aims to reduce retirement of age of central government employees from 60 years to 58 years.

Central Government Employees have seen the increase in retirement age from 55 to 58 in the year 1962 and from 58 years to 60 years in the year 1998, but reduction of retirement age has no precedence .Though it is practically possible to show the employees the door, who are between 58 years to 60 years and who are nearing 58 years, such employees would be much affected emotionally apart from financial loss.
Text of Financial Express’s report is as follows.
In a move that would help curb the relentless increase in the Centre’s non-Plan spending and ease the way for infusion of more young blood and professionalism into the country’s largely moribund bureaucracy, the Narendra Modi government is planning to reduce the retirement age of central government employees from the present 60 to 58.
The move that comes at a time when the Seventh Pay Commission is mulling another sharp boost to the pay structure of the Centre’s 5-million-strong workforce is also aimed at creating the requisite space for lateral entry of technically qualified professionals into the government, official sources told to Financial Express.
The retirement age was last revised in 1998, when the then NDA government led by Atal Bihari Vajpayee raised it from 58 to 60 years. The last UPA government had reportedly considered enhancing the retirement age further to 62 just before the general elections, but dropped the move.
The superannuation age was increased from 55 to 58 way back in 1962.
The total wage and salaries bill of the central government, excluding PSUs but including the railways, rose sharply between 2008 and 2010 due to the revised pay scales (along with payment of arrears) implemented as per the Sixth Pay Commission’s proposals.
The wage bill rose from Rs 1.09 lakh crore in 2007-08 to Rs 1.4 lakh crore in 2008-09, and further to Rs 1.7 lakh crore in 2009-10, before the growth moderated to Rs 1.84 lakh crore in 2010-11. The government spent Rs 2.54 lakh crore in wages and salaries in 2013-14. The railways (with 1.4 million employees), defence (civil), home affairs, India Post and revenue account for more than 80% of the total spending of the Centre on pays and allowances.
According to Madan Sabnavis, chief economist at CARE Ratings, reducing the retirement age will give the government an opportunity to outsource more jobs, including by bringing in people as temporary consultants, who will then have to be paid only a fixed salary but not pension or provident fund. Their salary component will then show up as administrative costs, rather than as wage bill
The finance ministry is weighing the pros and cons of the proposal to cut the retirement age. The move, sources said, is also in line with the BJP’s manifesto, which had promised to rationalise and converge ministries, departments and other arms of the government, open up government to draw expertise from industry, academia and society and tap the services of the youth in particular to contribute to governance.
The Madan Sabnavis report is focusing only on the economy of the country and not considering the employees welfare and their mental health on sudden retirement. Psychiatric morbidity is an important issue for all retirees. The younger people who retire are at greater risk of psychiatric morbidity.(Retirement and mental health by Dr Farooq Khan MD) For the past two decays the Central Government employees having in mind that the retirement age is 60. Sudden reduction of retirement age will give a risk of psychiatric morbidity.
According to census 2011 the life expectancy is 66.7 years and showing a increase of 4 years than that of earlier census. Life expectancy is the most important demographic indicator because it is linked to the adequacy of the retirement age. The life expectancy now is more than that of earlier period the retirement age should also be more. 
In the report on extending coverage of NPS in India prepared by Simone Stelten, Hertie School of Governance recommending the following .
As a result of the Demograhic transition there is a rising demand for oldage security, particularly of women. The choice for an internationall used retirement age of 60 years of age would be reasonable considering the raidly raising life expectancy.
The retirement ages in some of the countries.
§  Austria - 65
§  Belgium - 65
§  Denmark - 65
§  France - 65 (extending from 62 to 67 years over an 8-year period)
§  Germany - 67
§  Greece - 65
§  Italy - 60
§  Netherlands - 65 (67 for women)
§  Norway - 67
§  Spain - 65 (increasing over the coming years to 67)
§  Sweden - 65
§  Switzerland - 65 (64 for women)
§  United Kingdom - 68
§  United States - 67
The various studies reveal that the projected rate of retiree is nearly than 3% every year. If the retirement age becomes 58 the rate of retiree will be more than 10% and it is a great burden to the Government. The Government should provide some period to prepare mentally to retire before the age of 60 years which was in the mind of the all employees.  
Lastly , if Government wishes to reduce the age of retirement to 58 it is better to get the opinion of the employees by  voting this scheme by online.
Another, an  unconfirmed socking news that the Central Government wishes to stop the Pension to all the employees of the central government which covers  56 percent of GDP and it will grow 100 percent in another 25 years as the life expectancy is growing rapidly.
Notwithstanding the limited size and scope, India has a long tradition of pension and other forms of formal old age income support system. The history of the Indian pension system dates back to the colonial period of British-India. The Royal Commission on Civil Establishments, in 1881, first awarded pension benefits to the government employees. The Government of India Acts of 1919 and 1935 made further provisions. These schemes were later consolidated and expanded to provide retirement benefits to the entire public sector working population. Post independence, several provident funds were set up to extend coverage among the private sector workers
        Table-6 : Projection of Pension Payment to Central Government Employees (Civil)
                      (at 6% annual rate of inflation)
(Rs.Crores)
Years
Basic pension+DR
Commutation
of Pension
Retirement Gratuity
  Death
Gratuity
Restored
Commtn
PENSION
BILL
Service
SOFP
FFP
1999-2000*
1546
248
225
312
472
174
275
3250
2000-01
1677
267
242
346
546
129
283
3488
2001-02
1861
291
264
346
578
137
290
3767
2002-03
2049
318
287
346
613
145
298
4056
2003-04
2242
346
311
346
650
153
306
4355
2004-05
2457
378
339
346
689
163
313
4684
2005-06
2695
412
366
346
730
172
320
5041
2006-07
2936
449
393
346
774
183
328
5409
2007-08
3219
489
426
346
821
194
339
5833
2008-09
3489
533
461
346
870
205
346
6249
2009-10
3818
580
499
346
922
218
352
6734
CAGR
9.5%
8.9%
8.3%
6.9%
2.3%
2.5%
7.6%
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The 2009–10 budget estimated a total outflow of Rs.484 billion (approximately US$10 billion or 1% of GDP) on pensions and retirement benefits of central government employees (GoI 2009b). State government expenditure on pensions stood at Rs.1003.5 billion3 (approximately US$22.5 billion) in 2009–10 (RBI 2010). The outflows are expected to rise as the cohort of hires between the 1970s and 1990s retires. Bhardwaj and Dave (2005) estimated that the implicit pension debt on account of the civil service pension worked out to roughly 56 percent of GDP, It was therefore felt that the country was spending a disproportionate amount of money on a small set of the population, which was relatively better off to begin with.
Improvement in life expectancy and decline in fertility rate are leading to a significant change in the population age structure. The old age population (aged 60 years or more) has risen from about 19.8 million in 1951 to 56.7 million in 1991, resulting in an increase of the proportion of the elderly in the total population from 5.5 to 6.9 percent. According to the World Bank (1994a) estimates, the percentage of old people is expected to rise further to 10.3% by 2020. In absolute terms, the number of elderly citizens is anticipated to nearly double between 1996 and 2016, from 62.3 million to 112.9 million. Hence the liabilities under pension will increase enormousely.
There has been a fourfold increase in the number of pensioners from 0.27 million in 1984 to 1.05 million in 1999-2000. As a result, pension payment by the Indian Railways has increased 50-fold from Rs.1060 million in 1980-81 to Rs. 53120 million in 1999-2000.
It is suggested to give a lumpsum amount(Golden Hand Shake) to the retiree at the age of 58 as calculated below.
v A three times of cent percent commutation pension
v Usual DCRG
v Usual leave encashment
v No pension either to employee or his/her family
v The DCRG & Leave encashment to be paid in cash at the time of retirement.
v An example is given in Table A
Here an employee drawing Rs 20000/= (PAY+GP) and retiring at the age of 58 on 01/2015 is taken. If,he is getting a pension of Rs10000/= p.m  and getting pension for a period of 20 years to the tune of Rs7285010/= including 40% of commutation with an average of pension of Rs 344000/=.
The amount so calculated above (Golden Hand Shake) will come to the tune of Rs30,00,000/=
                                                   Table A
PAY
15800
G.P
4200
DA
20546
TOTAL
40546
PENSION
10000
DCRG 161/2
669010
Commutation 100%
1013520
X3 times
3040560
Total
1682530
say 17 lakhs
Pension
10000
113
Commutation 40%
405408
Annual Amount
1.1.2015
6000
11300
17300
207600
1.1.2016
6000
12300
18300
219600
1.1.2017
6000
13300
19300
231600
1.1.2018
6000
14300
20300
243600
1.1.2019
6000
15300
21300
255600
1.1.2020
6000
16300
22300
267600
1.1.2021
6000
17300
23300
279600
1.1.2022
6000
18300
24300
291600
1.1.2023
6000
19300
25300
303600
1.1.2024
6000
20300
26300
315600
1.1.2025
6000
21300
27300
327600
1.1.2026
6000
22300
28300
339600
1.1.2027
6000
23300
29300
351600
1.1.2028
6000
24300
30300
363600
1.1.2029
6000
25300
31300
375600
1.1.2030
6000
26300
32300
387600
1.1.2031
6000
27300
33300
399600
1.1.2032
6000
28300
34300
411600
1.1.2033
6000
29300
35300
423600
1.1.2034
6000
30300
36300
435600
1.1.2035
6000
31300
37300
447600
6879600
40% Commutation
405410
7285010
The amount so calculated will earn interest less than the pension he will get under pension rules 1972. it is shown in Table B with a formula of 21.6p.cf/100 where p= original pension cf =commutation factor with proportion of number of years completed.
The amount on Golden Hand shake will be deposited in Postal Bank (there is a proposal ) for a period of 10 years in the name of the retiree.  
It will create more fund for the bank and it will be utilized for loan purpose and will earn more interest than provided for deposit.
     Table B
SCSS
3000000
Interest
279250
20Yrs
5585000
For existing pensioner also we can use the same formula (21.6p.cf/100)
It is calculated on the 60% of the remaining commutation of pension with a commutation factor 8.194 as retired in 60years of age.
Pension
10000
Commuted Pension
4000
Factor
8.194
1769904
Year Completed
1
1681410
2
1592920
3
1504420
4
1415930
5
1327430
6
1238940
7
1150440
8
1061950
9
973450
10
884960
11
796460
12
707970
13
619470
14
530980
15
442480
16
353990
17
265490
18
177000
19
88500
20
0

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