PENSION LEKKALU GPF/CPS

PENSION LEKKALU GPF/CPS

GUARANTEED PENSION SCHEME or CONTRIBUTORY PENSION SCHEME

The Centre is reportedly curious in watching the implementation and application of the Guaranteed Pension Scheme being proposed to be offered to its employees.

2.Being a combination of old and new pension schemes, the GPS is set to guarantee 33% of last pay as  pension while continuing with the contribution of  employees of 10% of their pay as also the  govt. matching it. The govt.share has been raised to 14% from April,2019.

3.The officials in Central Govt. are expecting a situation that the contributions in the Contributory Pension Scheme,being invested in Stock Markets,were sure to grow at 9.5-10% over a period of  30-33 years,so that an employee in the CPS could be surely getting pension  at no less than 40% of last pay.

4.My opinion over the GPS is that when 10% of pay gives 50% last pay equivalent pension,  the  offer of 33% as guaranteed pension with continuing contribution of 20% or 24% of pay{ both of Govt. and employee} is literally and wholly unconvincing..In fact the guaranteed pension should have been equal to last pay. Hence, the employees are the losers.

4.My opinion over the GPS is that when 10% of pay gives 50% last pay equivalent pension,  the  offer of 33% as guaranteed pension with continuing contribution of 20% or 24% of pay{ both of Govt. and employee} is literally and wholly unconvincing..In fact the guaranteed pension should have been equal to last pay. Hence, the employees are the losers.

5.As shown in the following paras,I make out a case, with the aid of numerical examples and arithmetical formula, how the GPS is not beneficial to the employees.

6.(1). An employee in the time scale of pay of Rs 31460--84970.
(2).Average increment and average pay are adopted  for this purpose,at
Rs 1408 and Rs 32868 respectively only to eliminate complexities without change in the trend. Average increment is the difference between minimum and maximum of time scale divided by   the period in years of the scale of pay, while the average pay is minimum pay plus the amount of increment.
(3). Assuming---------------
x  stands for rate contributio
D  for pension equal to 50% last pay
r        for for the rate at which

contributions grow over time on compounding basis.

B  for the amount of average pay.

a       for a coefficient equal to (1+(r/100) .

And  n   stands for   number of years during which contributions are made.

7.When arranged in a carefully designed equation looks in the manner below.
*x= D (240000) / a (2400+r13) [ B { (a)n-1} ]*
After giving numerical values----
D= Rs 42485

r = 8 ( though Centre estimated at  9.5--10% ,I took at modest 8% )

B = Rs 32868
a = 1.08
n= 33
Therefore------------
*x =42485*240000 /1.08 (2400+8*13) (32868  [1.08]33-1 )*
*=10196400000 / 1.08*2504*32868*11.67604963504847*
*=10196400000 / 1037832557.8783*
*= 9.82*
*The required rate of contribution ( x) is 9.82% of pay to  get 50% of* last pay as pension.

8.How much Corpus develops over time of 33 years with 9.82% contribution is obtainable with the following equation.
*Corpus= [ (2400 +r13)/200] [xa/r] [B {(a)n-1} ]*
*= [(2400+8*13) /200] [9.82*1.08 /8 ] [32868 { (1.08)33-1} ]*
*= [ 12.52 ] [1.3257 ] [383768.40 ]*
*= Rs 6369697 or 64 Lakhs*
*The series of contributions at 9.82% are set to grow  to Rs 64 lakhs* over time of 33 years at modestly estimated 8% 0n yearly compounding basis.

9.Once after retirement, when the Corpus (6369697 )is invested in monthly income scheme at 8% , the employee gets Interest Income equal to 50% of last pay as noted below,

Simple Interest per month =Corpus*one month*interest rate/1200

= 6369697*1*8 /1200

= Rs 42465

Equal to 50% of last pay

10.Therefore from employees point of view, when a 9.82 or 10% contribution is bringing about pension equal to 50% of last pay, offer of 33%  under 20% contribution prima-facie appears unreasonable.

11.The Govt. may opt for investing its share of  10 or 14% in Stock markets and offer 50% of last pay as pension under old pension scheme while dispensing with the contribution of employees.

12.The Public Provident Fund scheme  readily comes to the rescue of the Govt.  With permission from the Centre, the Govt.  can invest their share in PPF which offers about 8% interest for bearing the pension burden under the old  pension scheme.

13.Details  of the exercises for arriving at 33% guaranteed pension are not available.  Also it is nor clear if the Guaranteed pension serves as a support when the Accumulated Pension Whealth  under CPS fails to yield  income less than 33% of last pay.

14.The employees Union may convince the Govt.  if they go with numerical examples as such,  since  all  exercises are done  in arithmetic formula alone by estimating future prospects with the past events.

Calculation may be sent to all GPF and CPS employees and all leaders to for a meaningful arguments before authorities and govt.