Retirement Benefitsapplicable for a CentralGovernment Employees Shankar Bose Inspector of Income-tax MSTU, Puri
Retirement Benefits applicable for a Central Government Employee – A Recap Let’s have a look at the retirement benefits for a centralgovernment employee. These benefits are also applicablefor an employee who intends to quitPensionThe minimum eligibility period for receipt of pension is 10years. A Central Government servant retiring in accordancewith the Pension Rules is entitled to receive superannuationpension on completion of at least 10 years of qualifyingservice.In the case of Family Pension the widow is eligible to receivepension on death of her spouse after completion of one yearof continuous service or before even completion of one yearif the Government servant had been examined by theappropriate Medical Authority and declared fit forGovernment service.W.e.f 1.1.2006, Pension is calculated with reference toaverage emoluments namely, the average of the basic paydrawn during the last 10 months of the service or last basicpay drawn whichever is beneficial. Full pension with 20years of qualifying service (10 years in special cases) is 50%of the average emoluments or last basic pay drawnwhichever is beneficial.Minimum pension presently is Rs. 3500 per month.Maximum limit on pension is 50% of the highest pay in theGovernment of India (presently Rs. 45,000) per month.Pension is payable up to and including the date of death.Commutation of Pension
A Central Government servant has an option to commute aportion of pension, not exceeding 40% of it, into a lump sumpayment with effect from 1.1.1996. No medical examinationis required if the option is exercised within one year ofretirement. If the option is exercised after expiry of one year,he/she will have to under go medical examination by thespecified competent authority.Lump sum payable is calculated with reference to theCommutation Table constructed on an actuarial basis. Themonthly pension will stand reduced by the portion commutedand the commuted portion will be restored on the expiry of15 years from the date of receipt of the commuted value ofpension. Dearness Relief, however, will continue to becalculated on the basis of the original pension (i.e. withoutreduction of commuted portion).The formula for arriving for commuted value of Pension(CVP) is CVP = 40 % (X) Commutation factor* (X)12Death/Retirement GratuityRetirement GratuityThis is payable to the retiring Government servant. Aminimum of 5 years qualifying service and eligibility toreceive service gratuity/pension is essential to get this onetime lump sum benefit. Retirement gratuity is calculated @1/4th of a month’s Basic Pay plus Dearness Allowancedrawn before retirement for each completed six monthlyperiod of qualifying service. There is no minimum limit for theamount of gratuity. The retirement gratuity payable is 16½times the Basic Pay, subject to a maximum of Rs. 10 lakhs.Death Gratuity
This is a one-time lump sum benefit payable to thewidow/widower or the nominee of a permanent or a quasi-permanent or a temporary Government servant, includingCPF beneficiaries, dying in harness. There is no stipulationin regard to any minimum length of service rendered by thedeceased employee. Entitlement of death gratuity isregulated as under: Qualifying Service Rate Less than one year 2 times of basic payOne year or more but less than 6 times of basic pay 5 years 5 years or more but less than 12 times of basic pay 20 years 20 years of more Half of emoluments for every completed 6 monthly period of qualifying service subject to a maximum of 33 times of emoluments.Maximum amount of Death Gratuity admissible is Rs. 10lakhs w.e.f. 1.1.2006Service GratuityA retiring Government servant will be entitled to receiveservice gratuity (and not pension) if total qualifying service isless than 10 years. Admissible amount is half month’s basicpay last drawn for each completed 6 monthly period ofqualifying service. There is no minimum or maximummonetary limit on the quantum. This one time lump sumpayment is distinct from and is paid over and above theretirement gratuity.General Provident Fund and Incentives (For employeesjoined Government Service before 1.1.2004)
As per General Provident Fund (Central Services) Rules,1960, all temporary Government servants after a continuousservice of one year, all re-employed pensioners (Other thanthose eligible for admission to the Contributory ProvidentFund) and all permanent Government servants are eligible tosubscribe to the Fund. A subscriber, at the time of joining thefund is required to make a nomination, in the prescribedform, conferring on one or more persons the right to receivethe amount that may stand to his credit in the fund in theevent of his death, before that amount has become payableor having become payable has not been paid. A subscribershall subscribe monthly to the Fund except during the periodwhen he is under suspension. Subscriptions to the ProvidentFund are stopped 3 months prior to the date ofsuperannuation. Rates of subscription shall not be less than6% of subscriber’s emoluments and not more than his totalemoluments. Rate of interest on GPF accumulations witheffect from 1.4.2009 is 8% compounded annually and therate of interest will vary according to notifications of theGovernment. The Rules provide for drawal of advances/withdrawals from the Fund for specific purposes.Deposit Linked Insurance Revised SchemeUnder the GPF Rules, on the death of subscriber, the personentitled to receive the amount standing to the credit of thesubscriber shall be paid an additional amount equal to theaverage balance in the account during the 3 yearsimmediately preceding the death of the subscriber subject tocertain conditions provided in the relevant Rule. Theadditional amount payable under that Rule shall not exceedRs. 60,000/-. To get this benefit, the subscriber should haveput in at least 5 years service at the time of his/her death.Contributory Provident FundThe Contributory Provident Fund Rules (India), ,1962 areapplicable to every non-pensionable servant of theGovernment belonging to any of the services under the
control of the President. A subscriber, at the time of joiningthe Fund is required to make a nomination in the prescribedForm conferring on one or more persons the right to receivethe amount that may stand to his credit in the Fund in theevent of his death, before that amount has become payableor having become payable has not been paid.A subscriber shall subscribe monthly to the Fund when onduty or Foreign Service but not during the period ofsuspension. Rates of subscription shall not be less than 10%of the emoluments and not more than his emoluments. Theemployer’s contribution at that percentage prescribed by theGovernment will be credited to the subscriber’s account andthis is 10%. Rate of interest with effect from 1.4.2009 is 8%compounded annually. The Rules provide for drawal ofadvances/ withdrawals from the CPF for specific purposes.As in GPF Rules, the CPF Rules also provide for DepositLinked Insurance Revised Scheme.Leave EncashmentEncashment of leave is a benefit granted under the CCS(Leave) Rules and not a pensionary benefit. Encashment ofEarned Leave/Half Pay Leave standing at the credit of theretiring Government servant is admissible on the date ofretirement subject to a maximum of 300 days. There is noprovision under the Rule for payment of interest on delayedpayment of Leave Encashment.Central Government Employees Group Insurance SchemeA portion of monthly contributions paid while in service iscredited in a Saving Fund, on which interest accrues. AGovernment servant while entering service has to apply inForm No. 4 of the above Scheme to the Head of Office, whoshall issue a sanction for the payment of subscriber’saccumulation in the Savings Fund segment together with
interest and arrange for its disbursement, soon afterretirement. Payments under this Scheme are made inaccordance with the Table of Benefit which takes in toaccount interest up to the date of cessation of service.Insurance cover benefit under this Scheme is available tothe family in the event of death of the subscriber. No interestis payable on account of delayed payments under thisScheme.…………………………….Some Tips for Retirement PlanningRetirement Planning Tips In India 2012-2013: People havedifferent plans for retired life. For example you may think ofretirement as a time to relax, to laze around, to spend moretime with family, travel or write a masterpiece. Attainingfinancial independence after retirement will not be just adream if the following steps are followed with steadydiscipline, perseverance and if smart investment strategies. Start saving early: Nobody takes retirement seriously. But the fact is that even a small sum of money saved regularly and invested regularly makes a big amount which will come in very handy after retirement. One should not believe that after retirement, one can place all savings into income generating investment and spend rest of life in happiness. If you dont plan early, you could end up eroding your principal savings in order to supplement your monthly income. Retirement should be your top priority: Retirement should be kept as a top priority because if one does not keep it at the top one might end up depending on ones children, which probably no one would relish. Create a Retirement Plan: Develop a plan for saving based on your requirements at the time of retirement. The goals you keep for saving depend on your lifestyle but you will need at least about 66% of your pre- retirement income to maintain your standard of living when you stop working.
Understand your Pension Plan: If your employer offers pension plan, understand carefully your benefit level, financial stability of plan and the vesting period. Use retirement plans even if you already have enough money. With retirement plans your money grows in a tax efficient manner and compounding interest over time makes it one of the best investment options. Balance your risk tolerance and your investment strategy: Evaluate your risk profile and then balance your investment strategy to invest in various avenues to get the most out of your retirement money keeping your risk profile unhampered. Diversify your investments & allocate your assets carefully: Depending on your work profile divide your savings into equity, bonds, Mutual Funds, and other investment avenues. Dont invest too heavily in one sector or one company, since the risk associated with putting all your eggs in one basket is indeed very high. Save and Invest Regularly: Saving and investing regularly makes a big difference at the time of retirement. Investing at regular intervals builds your retirement fund over time and helps you to minimize risk and gives a tension free retirement-a time to pursue your hobbies, fulfill your dreams and passions. Thank You