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Retirement benefits are something that you should be familiar with already. In fact, their importance lies in how they secure us financially after we stop working. Let us take a closer look at what these benefits are and how they help after retirement.
A Brief Understanding of Retirement Benefits
Retirement benefits literally indicate the perks/benefits received by employees of both public and private sector firms upon retirement. The scope and nature of the benefits may vary across organizations, depending upon internal policies and compliance with Governmental regulations.
Why Are Retirement Benefits Important?
It goes without saying that the majority of the working population in India depends on retirement benefits to sustain themselves and their families in their golden years financially. These benefits help secure the financial footing of the employee, enabling him/her to meet future expenses and live in a dignified manner after retirement.
They are indispensable throughout the sunset years of life. Financial independence helps ageing citizens cover their costs and surmount any sudden challenges.
What are the Types of Retirement Benefits?
There are various types of retirement benefits that are commonly granted to employees by their organizations. Some of them include the following:
- Leave Encashment- This is one of the key retirement benefits received by employees. They can accumulate their leaves and finally exchange them for money upon their retirement from the organization. The exact number and formula depend on various factors.
- Pension– There are several types of pensions for retired Government officials. These include pension on retiring, superannuation, compassionate allowances, voluntary retirement, family pension, extraordinary pension, and compensation pension. Superannuation pension plans are for Government officers serving until they are 60. A voluntary pension is paid to those who want to retire just three months after completing service for 20 years.
Extraordinary pension is paid to physically challenged or differently-abled Government employees or their families who lost their lives while serving the Government.
Private sector employees can also get pensions as per the provision made by the EPFO (Employee’s Provident Fund Organization). However, one should have served continuously for at least 10 years to avail of this option.
- Provident Fund– This contributes a major chunk of retirement benefits, accumulating through the contribution of a small portion of the monthly basic pay of the employee and an equal contribution by the employer.
- Gratuity—This is a token of gratitude/appreciation for the employee’s long-term service. The Payment of Gratuity Act of 1972 lays down the rules for this retirement benefit in India. It is only applicable to those who have completed at least five years of continuous service in the company.
The formula is Gratuity = (15 x Last Drawn Salary x Number of Working Years) / 26
Note here that the last drawn salary includes the basic salary and the dearness allowance (DA). Also, one working year is recognized upon the completion of six or more months in a year.
Signing Off
Thus, retirement benefits are essential for every employee, enabling them to gain financial independence in their golden years. They enable financial independence and freedom from worries. Hence, they should be used smartly after retirement. Consulting a financial expert is always advisable for this purpose.
