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Once the working life of an individual is over, or he has retired, what will he live on? This is a question which every individual faces during his working life and is of equal importance to a concerned employer. Personal savings, Provident Fund and Gratuity are the normal assets he acquires. If not spent prudently, these aasets can fritter away in a short time.
2. What is Pension Scheme
Basically it is a saving, or call it a contribution, which is collected during the working life of an individual and invested profitably. After retirement the individual is entitled to a steady monthly income from a fund built up from the earlier savings.
In a sense, it is a reward to the employee, granted today, while money is to be received on retirement.
3. Why a Pension Scheme
We advise a pension scheme due to following benefits to the Employees:
- After retirement when the monthly pay-cheque stops, the individual starts receiving a regular monthly income in the form of a pension.
- While contribution to the scheme, the individual gets a tax concession.
- The individual, after retirement, need not fear of a drastic reduction in his standard of living.
- All pensions are completely tax-free.
- Retirement comes as planned and not abruptly as a shock.
4. Benefits to the Employer
- Contributions to the Pension Scheme by the employer are treated as business expenses and deductible in full.
- The knowledge that at the end of the career, the employee will get a regular pension, helps to build up his job loyalty and the adherence to the job, to the employer's satisfaction.
- Employer does not have to find money to compensate an employee when he ceases to work.
- Shows that the Management cares for their staff and is concerned about their welfare.
- Attracts new employees.
- Retirement of personnel is planned in advance, removing uncertainty both for the employer and the employee.
- Promotion channels in the management hierarchy are unclogged.
5. Comparison with Provident Fund and Gratuity.
1. Provident Fund
This is like a savings bank. The contribution of the employer as well as the employee along with interest accumulated over the years, is handed over to the employee on his retirement.
However, in case an employee wishes to leave before retirement is due, employer's contribution may not have to be paid; or only part payment may be made.
Gratuity is exclusively the employer's contribution for the benefit of the employee. From half to a full month's salary is credited for every year of service. Reserves are set aside in the balance sheet but they do not attract tax concession, unless it is a funded scheme. The security of the employee to receive the gratuity is dependent on the continued existence of the employer and his profits, except in case of a funded scheme.
3. Pension Scheme
In comparison with the aforementioned two retirement benefits the Pension Scheme has distinct advantages:
- Payments through Pension Scheme are guaranteed for life.
- A pensioner can look forward to his retirement with confidence and security.
- Pension Scheme is the only method through which regular income accrues to an employee after retirement.
- The payment of the pension is not dependent upon the fortune of the employer.
- Lump sum comparable to those received from Gratuity or Provident Fund, can still be drawn by commutation or the pension while maintaining a steady monthly income.
6. How State Life can help you with the Pension Scheme?
State Life maintains a full-fledged pension Department capable of handling each and every scheme in the most competent and professional manner. It has actuaries, lawyers and other experts, besides offering a unified administrative, technical and investment service. An employer can relieve himself of the tedious and cumbersome work by using the professional service offered by State Life, the major ones being:
1. Designing a Pension Scheme according to am employer's exact requirements, in addition to determining the rate of contribution etc.
2. Preparation of explanatory documents, if required, for consideration by employees.
3.Assisting the employer's legal advisers with the preparation of Trust deed and Rules.
4.Providing reasonable assistance in negotiations with the Central Board of revenue for approval of the scheme.
5. Maintenance of Individual records of members of the scheme, their contributions, the employer's contribution, pension accrued etc.
6. Facilities for payment of pensions, when due
All policies issued by State Life are guaranteed and enjoy full financial security, backed by the Government under Article 35 of Life Insurance Nationalisation Order 1972.
7. Payment of Pension
The pension will be payable by monthly instalments; commencing from the retirement of member and ceases upon his death.
8. Guaranteed Payments
By incorporating a Guaranteed Pension period, payment can be ensured for a defined period say 5 to 10 years, whether or not a pensioner is alive after retirement, if, however, a pensioner survives the guaranteed period, pension will continue throughout his lifetime.
9. Supplementary Benefits
They may be termed as supplementary, but are indeed those invaluable finishing touches that make the picture complete. Employees would not feel secure unless their families were provided for in the event of their untimely demise. At a little extra cost employees may be given peace of mind by providing these benefits, some of which are listed below:-
Widow's Pension (upon death in service)The pension will be payable to the wife of a member if he dies while in service. Normally, a widow's pension is one half of the member's pension entitlement.
WIDOW'S PENSION (upon death after retirement)The pension is payable to the wife if the member dies after retirement. In this case also a widow's pension is one half of the pension the member was receiving. The widow's pension, in either case would be payable for life but would cease in the event of remarriage.
Orphan's BenefitsThe inclusion of orphan's benefits in Pension Scheme along with the widow's pension, gives the scheme a level of completeness. A normal scale of orphan's benefit is 33% of the widow's pension per child, payable upon the child's attainment of age 18 or earlier marriage. Limit is imposed on the number of children who can claim such benefits.
10. Retirement Aspects
Pension will be payable to a member according to a predetermined scale on the normal retirement date fixed by the employer.
A member who retires before his normal retirement date on account of becoming incapacitated, or for any other reason, may be granted a reduced immediate pension to commence on the day following the actual date of retirement.
12. Late Retirement
A member who remains in employer's service after the normal retirement date will receive an appropriately increased pension on retirement.
13. Withdrawl Benefits
If a member withdraws from the service of the employer before the normal retirement date due to any reason and without any entitlement to early retirement pension, his future contribution, or contribution made on his behalf, will cease.
Benefits to be paid on withdrawal will depend upon the "withdrawal from service" rules of the scheme. In such a case one of the following procedures may be adopted:
Refund of contributionIf a member withdraws from the contributory scheme a refund is made of all the contributions made by the employee.
Defrred Paid-Up PensionA withdrawing member may be allowed a deferred paid-up pension of the amount accrued to his account on the date of withdrawal. The reduced pension will commence on his normal retirement date.