Part ll Retirement planning

Please read the first part of article for continuity

We have been discussing about the retirement planning and the various option provided by the players in the market.

Before we go to the retirement planning, where one has to pay a Premium for certain number of period and then gets a pension, we will just understand the pension given by Govt. to its employees.
Pension is a monthly payment given to the Govt employee after his retirement till his life time for the service rendered by the employee to the Government. Normally the pension is payable at the half of the basic pay drawn at the time of retirement. Suppose if one's basic pay on the retirement is 10000 his pension will be 5000. In addition the employee will be getting the Dearness Allowance as applicable to regular employees calculated on the basic pension.( This defined pension scheme had been withdrawn and from 01.01.2004 new entrants to govt will not have this benefits as per the govt of India order.)

We will just take an example of new scientific officer SC/ Scientist B whose basic pay will be 8000 (based on the Fifth pay commission). Now we has to see what will be his basic pay after 30 or so years because he is going to retire after 30 years. We will take the historical comparison for our calculation to arrive at the basic pay after 30 years.

In the instant example I am assuming that he remains in the same pay with no increment, no promotion.

pay commission	PERIOD(YEAR)	basic pay	percentage increase
III	1976	650
IV	1986	2200	13%(APPROXIMATE)
V	1996	8000	14%(APPROXIMATE)
ASSUMPTION
VI (EXPECTED)	2006	20000	10%
VII	2016	52000	10%
VIII	2026	135000	10%
IX	2036	350000	10%

The basic pay of an scientist as per the III pay commission as on 1976 was 650 and the same was 2200 as on 1986 as per the IV pay commission. In the same way V pay commission increased the pay to 8000. If we see the pattern, the annual increase in pay was around 13% or so and in the similar line, annual increase of 10% for the future is taken and basic pay is arrived accordingly in the above table.

Now we will work out the pension of a employee since we got the basic pay of an employee. A young engineer aged 23 years joined the govt service as on 1.1.2001 and he will be retiring on attaining the age of 60 years as per the prevalent rules of govt. Hence his retirement will be in the year 2038 and his basic pay will be 350000 per month as per our above table approximately. Hence his basic pension will be 350000/2 = 175000 Remember in the above calculation the engineer is not given even a single increment leave alone his promotion. We presume that he remains stagnant in the same basic pay all over his service.

After retirement he will be getting a basic pension of Rs.175000 per month till his retirement.

The above amount forms the bench mark for us to calculate the premium payable by a private sector employee to earn the monthly pension after 30 years.

We will see how the premium works out for such a sum.