Retirement benefits of a Government Employee - Part 1

Once a person joins Government Service, he may face the following situations.

1. Retirement on Superannuation (Most Common) 

2. Death after retirement (Most Common) 

3. Resignation / Voluntary Retirement (VRS) / Compulsory Retirement (CRS) / Death before retirement

There are provisions in different rules for social security of the Government employee and his/her family. Hence financial benefits are given to him as per the happenings listed above. We will discuss the matters case wise.

1. Retirement on Superannuation : Every Government employee desires to retire from Government Service on attaining age of Superannuation. If there is no unwanted situations before age 60 years, then it is a common phase in the life of a Govt. servant.

The following financial benefits are given to the employee after retirement.

A. Lump sum amount :

1. Retirement Gratuity 

2. Leave Encashment 

3. Deposits in Group Insurance Scheme (GIS)

4. Deposits in General Provident Fund (GPF) and it's incentives

5. Commutation Pension (Optional) 

B. Next month of Retirement onwards

1. Basic Pension + DR

Lets take an fare example of an employee retiring at the age of superannuation i.e. 60 years

Date of Birth - 01.06.1961

Date of Entry into Service - 28.06.1991

Date of Retirement - 31.05.2021

Last drawn salary : 

Basic Pay = 70,000, DA = 11900

---------CALCULATION---------

Qualifying Service Period :

In calculating the length of qualifying service, a fraction of a year equal to three months and above but less than six months shall be treated as a completed one-half year and the period of nine months and above shall be reckoned as two-half years.

Service period

= 29 Year 11 Month 3 Days

= 60 halves of years ( No. of competed six months) 

Basic Pension : 

This is calculated based on the last pay drawn during the month of retirement. 

Formula

= Basic Pay / 2 = 70000 / 2 = 35000

Retirement Gratuity : 

• This is one time lump sum benefit payable to the retiring Government servant. 
• A minimum of 5 years' qualifying service  is essential. 
• If qualifying service is 33 years or more, then maximum 33 years will be taken into consideration. 
• There is no minimum limit for the amount of gratuity but the maximum amount is Rs.15 lakhs. (OM No. 28300/Finance Dt. 23.09.2017) 

Formula

= (BP + DA) x half Service Periods / 4

= (70000 + 11900) x 60 / 4

= 12,28,500

Leave Encashment : 

• Encashment of leave is a benefit granted under the OCS (Leave) Rules and is not a pensionary benefit. 
• Encashment of Earned Leave/Half Pay Leave standing at the credit of the retiring Government servant is admissible on the date of retirement subject to a maximum of 300 days.

Formula

= {(BP + DA) / 30 } x No. of EL

= {(70000 + 11900) / 30 } x 300

= 8,19,000

Group Insurance Scheme :

The money deposited by the employee in GIS at the time of joining will be refunded on retirement. . 

Formula

= 7,500 ( for Grade Pay upto 4600) 

= 12500 ( for Grade Pay more than 4600) 

Commutation Pension :

• A Government servant has an option to commute a portion of pension, not exceeding 40% of it, into a lump sum payment. 
• No medical examination is required if the option is exercised within one year of retirement. 
• Lump sum payable is calculated with reference to the Commutation Table.  

Formula 

= 40 % of Basic Pension x 12 x Commutation factor

= (40% x 35000) x 12 x 8.194

= 14000 x 12 x 8.194 

= 13,76,592

• The monthly pension will stand reduced by the portion commuted.
• The commuted portion will be restored on the expiry of 15 years from the date of receipt of the commuted value of pension.

Residuary Pension :

= Basic pension - Commuted pension

= 35000 - (40% of 35000) 

= 35000 - 14000 = 21000

• Dearness Relief, however, will continue to be calculated on the basis of the original pension (i.e. without reduction of commuted portion).

----- CONCLUSION -----

Finally if we can conclude at the retirement benefits of the aforesaid employee as follows;

Lump sum amount

1. Retirement gratuity = ₹ 12,28,500

2. Leave Encashment = ₹ 8,19,000

3. GIS deposits = ₹12, 500

4. Commuted pension = ₹13,76,592

Monthly Pension (Commutation pension not opted) 

= 35000 + DR (on Basic pension) 

= ₹40,950

Monthly Pension (Commutation pension opted) 

• First 15 years =  ₹21000 + (DR% x Basic pension) 
• After 15 years =  ₹35000 + (DR% x Basic pension) 

We will discuss about other situations in next part. 

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