Understanding Pension Types: Can You Explain the Differences and Applications?

Dear all,

I want to know some information on the pension fund. Somewhere I have read that there are 3 types of pensions:
1) superannuation pension
2) retirement pension
3) short service pension.

Can anybody tell me:
1) What are the basic differences in all these 3 types of pensions?
2) When and in which industries are they applicable?
3) How are these calculated?

Thanks in advance to all of you.

Superannuation Fund

It is a fund that is kept with the LIC by the organization, and it is transferable just like a Provident Fund account. The pension is provided to an employee after separation from the company after 5 years, after retirement, or to the nominees after the death of the employee.

Retirement Pension

Any pension received by the employee after retirement is Retirement Pension, such as from the Provident Fund Department in the case of private limited companies. In the case of government employees, they receive the pension from a department that has no connection with the PF Department.

Short Service Pension

This terminology was used by the PF department when they started the new current pension scheme. They started giving the pension to the members even when they were in service, and that pension was called Short Service Pension. However, that scheme is now closed.

This is a pension scheme already in place for the Armed Forces. When armed personnel are commissioned for a short term, minimum of 5 years and extendable in multiples of 5 years of service, such as 10 years, 15 years, etc. After separation from the armed forces following a service of say 5 or 10 years, the individual receives a pension for their whole life, which may be referred to as Short Service Commission Pension.

This is my understanding of the various types of pensions. If anyone has a different opinion, they are welcome to share their views on the topic.

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Dear all,

I want to know some information on the pension fund. Somewhere I have read that there are 3 types of pensions:

1) Superannuation pension
2) Retirement pension
3) Short service pension

Can anybody tell me:

1) What are the basic differences among these 3 types of pensions?
2) In which industries and when are these applicable?
3) How are these calculated?

Thanks in advance to all of you.

Hi Nipuna,

When it comes to calculations, the methods vary for different types of pensions. In my experience working in the private industry, I can provide insight into the method used by the PF department to calculate pensions. You can refer to the Employee Pension Scheme, 1995, which was implemented on November 16, 1995.

I haven't heard of any other pension scheme. The rest that I have heard of is linked with an insurance company, which is managed by the individual himself. This is independent of the company, PF, etc., and has different terms and conditions.

Superannuation Pension is given after the person completes their full tenure of service. As per policy, there is no service left over; for example, for Government employees, it is 60 years. This is superannuation Retirement Pension.

Retirement Pension is given to an employee after they become eligible for pension upon premature release from service.

Short service pension is from PF, given after the age of 50, provided the employee has contributed for at least 10 years to the PF.

Dear Nipuna,

As per the Employees Provident Fund & M.P. Act-1952 and the Scheme framed thereunder, the types of pensions in your question are as follows:

(1) superannuation pension if he has rendered eligible service of 20 years or more and retires on attaining the age of 58 years;
(2) retirement pension, if he has rendered eligible service of 20 years or more and retires or otherwise ceases to be in the employment before attaining the age of 58 years;
(3) short service pension, if he has rendered eligible service of 10 years or more but less than 20 years.

One more term reduced pension, it is actually a pension which the P.F. department offers to those members who have attained the age of 50 years but not 58 and ceases to be a member of the pension fund. Such members can opt for reduced pension at a rate of 3% reduction per year until attaining the age of 58 years. After 58, the reduction shall be stopped.

All industries covered under the Employees Provident Fund and Miscellaneous Provisions Act-1952 will be covered under the aforementioned pension schemes, applicable on a case-to-case basis to employees as defined.

Currently, from 16/11/1995, the formula for calculating pension is as follows:

Pension Amount = (Pensionable Service (No. of Years) * Pensionable Salary)/70

However, there are many factors taken into consideration when calculating the pension, such as the past service of a member before 16/11/1995, etc.

For your information, there are various other pensions offered under the Act:
1. Widow Pension
2. Children Pension
3. Orphan Pension
4. In the case of an unmarried member - Pension to a Nominee or legal heir or dependable parents.

I believe the terms you mentioned in your query are now clear to you. If not, please write again, and I will provide you with more information on the same.

Thank you,
Mohd. Arif Khan
Dy. Manager HR

Dear Mr. Arif,

Thank you for the detailed answer. I understood the things, but there is a query regarding the calculation of the pension fund. The pension amount is calculated using the formula:

Pension Amount = (Pensionable Service (No. of Years) * Pensionable Salary) / 70

Could you please explain why 70 is used in this formula and clarify what the term "pensionable salary" means in this context?

Thank you for your assistance.

Best regards, [Your Name]

Hi,

I have recently joined a retail chain. Please tell me about:

- Employee Provident Fund
- Employee Family Fund
- Employer Provident Fund contribution
- EDLI
- Admin charges

Please provide information about the fund schemes.

GAGAN DEEP SINGH GILL

Dear Nipuna,

Greetings of the day,

First, I will clarify the basis of 70 in the formula:

1. It is presumed that in general, a person will work 33 years (approx.) in his lifetime.
2. Under the E.P.F. Act, there is a 2-year weightage to a member who has contributed to the scheme for at least 20 years.
Thus, the total pensionable service will become = 33 + 2 = 35 (Under normal assumptions).

In the Govt. System, the pension is approximately 50% of the monthly wages, i.e., (1/2 of wages).

The formula is Pension Amount = (Pensionable service * Pensionable Salary) / 35*2
Now, this 35*2 = 70, i.e., the product of the maximum years of service and 50% of wages.

You can now understand it like this:

Pension Amount = (Actual Service One has rendered as a member of the pension Fund * 1/2 of his wage on which monthly contribution was paid) / Maximum No. of years a person can work before his normal retirement.

Secondly, Pensionable salary is the amount of wages on which the monthly contribution is normally paid.

Let me know for further clarification in this regard.

Thanks,

Mohd. Arif Khan
Dy. Manager - HR

Hi all,

Can anybody tell me what is the term used when a retired person is called back to work in the same organization from which they retired?

Please reply soon.

Dear Skant,

In our company, it's termed as retainership when a retired person is called back to work in the same organization from which they retired.

Thank you.

Hi Rajeev is right, and I will add a few clarifications.

1. Superannuation Fund

Generally, managerial employees are covered under this. There is a contribution varying from 10% to 15% of Basic salary, and this is generally contributed by the company. There are a few instances where they get employees' contribution as well. Some companies have a minimum service prescribed for joining or a minimum service required for getting the benefit; many companies have 5 years as a minimum period, and now this clause is generally taken away as it is shown as part of CTC. Employees can opt for a pension at any age. They can transfer this fund to the new company's fund provided it also has a similar fund managed by LIC and if the Trust Deed provides for transfer. If the Trust Deed does not provide for transfer, then we cannot transfer this fund.

Many insurance companies offer this scheme now.

After the employee resigns, he or she can opt for transfer and pension. Withdrawal of the fund is not permitted nowadays. Some old funds allowed withdrawal by paying tax.

There is no calculation method. Generally, if the fund accumulated is around one lakh, you will get an annuity of 500 if your age is around 55. This annuity can be more if you opt for a lesser number of years of guaranteed payment. The corpus is refunded to the legal heirs of the employee on his/her death.

2. Retirement Pension

This is the pension applicable under the PF Act. An employee must have served for ten years under the fund and must have contributed for ten years to become eligible for a pension. He or she is eligible for a pension after they reach 55 years, which is referred to as short service pension. Full pension is available when they reach 58 years. I am not familiar with the pension method, but it depends on the service and the pensionable salary and some factors.

Siva

VPF is Voluntary Provident Fund.

As per the act, the member has to contribute at the rate of 10% or 12% of his basic pay, D.A., and retaining allowance if any. The employer also contributes the same amount.

However, in case the member wants to contribute more than this, voluntarily, he can do so at any rate he desires, i.e., up to 100% of basic and D.A. But the employer is not bound to contribute at the enhanced rate.

Superannuation means a small portion of amount form the salary of an employee is deposited by the employer in the account of employee. That he ( employer ) gives him ( employee ) when he reached at some particular old age ( above 58 yrs or as decided by the governing body ) fixed by the employer and it is considered that person has no efficiency of performing the work after reaching a particular age. A monthly fixed installment credited to employees saving account.
Retirement: - Retirement can be at any time depending upon the profession of a person i.e. Football player, Badminton Player, cricketer, Flying Officer, administrative officer. Certainly the retirement age of different professional will be the different. We Can't say it as superannuation age ( until it reached old age i.e more than 58 yrs.)
Short –Term pension is that the employer or the governing body decide that after providing a number of years of service and reaching at some particular age that is nearly 8-10 yrs less than that of retirement age, the employee will get short pension ( the employee will get less % of amount as pension compared to calculate at the time at the time of retirement ) . This depends on the Policy of the governing body.
Suppose the governing body decide that the for pension retirement age will be 60 yrs. Service should be at least 25 yrs. For the short -term pension the person must attain the age of 50 yrs. And service should be at least 15 yrs.
Superannuation and Retirement pension ( after reaching more than 58 yrs.) are the almost same.
In Retirement you can get the lump- sum that is deducted form your salary . you may or may not get the pension
But in superannuation you will get the pension.

Dear Nipuna,

There is a Superannuation Scheme offered by the employer to their employees, and around 15% of the basic salary is provided by the employer as Superannuation Contribution to the accounts of its employees. This scheme is normally linked through LIC of India, and annual or half-yearly contributions are sent by the employers related to all their employees covered under the scheme to the LIC.

There are mainly three options under the said scheme when you quit the services of the company:

1. You may opt for cash withdrawal of 2/3rd portion of the total deposits, including interest as on the date, with the balance being kept by LIC to be paid as a pension on a monthly/quarterly/half-yearly, or annually by cheque to your account.

2. Or, you may opt for 100% cash withdrawal, including interest.

3. Or, there is one more option which you may clarify from any LIC branch maintaining the Superannuation account.

As I have opted for the first option while leaving the company after serving for 18 years and got 2/3 cash against my total balance, the remaining amount was kept by LIC, and I am now receiving a half-yearly pension.

I hope this further clarifies the matter.

Regards,
N.S. Hashmi

Dear Rajeev,

Thank you for providing information about 3 pensions. I gained more knowledge as I had heard of these pensions but not learned in detail. Keep sharing such valuable information on the forum.

Regards,
Bugs Bunny

Please tell me from which date an employee is eligible for a pension if the details are as below: If he applies for a pension on 1st Oct 2010.

Details for Pension Eligibility

1. Date of retirement: 14 Aug 2008
2. Still continuing in the job but no contribution towards EPF.
3. Wants to apply for a pension. Will he get the arrears from 14 Aug 2008?

Please clarify.

Regards,
Msrao

I would like to know up to how many years a member will receive a pension. One of my ex-colleagues was receiving a pension, but as soon as he turned 70 years old, his pension was discontinued by the department. He approached the concerned bank, but they did not provide any answer and directed him to the RPFO. However, he did not receive any answer from there either.

Recently, someone told me that after the age of 70, the pension from EPF will be discontinued. Although I am not convinced, the factor of the calculation of 70 indicates that the maximum age for receiving a pension may be 70 years only. Can I get the facts?

Thanks & regards,

K P Mishra.

Our company wants to introduce a pension scheme for employees in addition to the EPF pension. Could somebody please share information about the pension schemes available?

Dear K.P. Mishra,

At the time of the introduction of EPS on 16.11.1995, the service pension for those who completed 33 years was 50%. In EPS, those who complete 20 years of service or more will receive a bonus of 2 years. Accordingly, 33 years will be treated as 35. To get 50%, 35 is divided by 70. Hence, the formula is derived. It has no connection with the duration/age of receiving a pension.

The duration of the pension for a member is lifelong, regardless of reaching the age of 70 or otherwise. When the provision of return capital was introduced on 16.11.1998, there was an option to avail pension for 20 years and thereafter pay the Return of Capital. In this context, for the completion of 20 years, we have to wait until November 2018. If it was paid with retrospective effect, there is a chance to stop the pension under this clause.

If a member fails to submit a life certificate, the pension will be stopped. Remarriage of a widow/widower pensioner is also a reason for the stoppage of the pension. If the pensioner does not receive a satisfactory reply from EPFO, the reply may be sought through the RTI Act.

Abbas.P.S

Thanks a lot, Dear Abbas, for your valuable information. However, we would like to introduce a pension for our workmen in addition to their EPS pension after retirement.

I have worked in a private non-banking company for 9 years and 6 months. I have recently resigned from my job. Am I eligible for pension and gratuity? How many years of service are required for these benefits, and what are the terms and conditions needed for eligibility? Additionally, could you please explain the calculation process to me?

Thank you.

Dear Suresh Oruganti,

For gratuity, the minimum service required is 5 years. In EPS, 9 years and 6 months will be rounded up to 10 years, which is the minimum required service to get a pension.

Abbas.P.S