Government jobs are lucrative especially because they provide not only for the present but also for the future. As soon as the employee joins his duty, several of the schemes kick in which work towards a secure safer future after retirement. Let us have a look at these retirement benefits of an SSC Job for a job at the Grade Pay of Rs. 4600/-. (Both the jobs, SI in CBI and ITI have a grade pay of Rs. 4600/-.)
New Pension Scheme (NPS)
In 2005, the older pension scheme was scrapped by the government and a new NPS scheme was launched for government employees recruited after 2005.
This scheme mandates that 10% of the Basic Pay + DA be deducted towards NPS account every month from your salary. The government matches this amount and deposits equal amount in your NPS account. This is a pretty generous scheme in which a sufficient corpus is accumulated during the period of your service. Supposing that you join the service at the ripe age of 25, you will have 35 years of service ahead of you. Let’s have a quick calculation of your retirement fund.
Monthly contribution from your salary = 10% of (Basic + DA) = 10% (44900+ 7% of 44900) = Rs. 4804/-
Amount deposited by the Government = Rs. 4804/-
Total amount deposited in your account per month = Rs. 4804/- + Rs. 4804/- = Rs. 9608/-
Annual increment in your salary is about 7% on an average. Hence per month deposit in your NPS account is Rs. 9608/- with an annual increment of 7%.
This amount comes out to be Rs. 7,70,19,289/- at your retirement age, assuming a conservative return of 10% per year. (Using this calculator)
Adjusting for inflation (assuming an inflation rate of 6%), this amount comes out to be Rs. 1,00,20,611/- in today’s currency. (Not bad!)
*[This is when we have not even accounted the 4 pay commissions that will be implemented during these 35 years. A pay commission may boost your salary by as much as 90% as was done in the 6th pay commission. The actual amount from NPS will be much higher than what we have calculated.]
25% of your contribution can be withdrawn prematurely before retirement in case of an emergency. This partial withdrawal is completely tax-free. Further, on retirement, withdrawal of 40% of the remaining corpus will also be tax-free.
You can withdraw a maximum of 60% of this corpus at the time of retirement. The remaining 40% must be used to buy an annuity plan (Pension plan) from any of the Financial entity like HDFC or ICICI. This 40% amount is what will pay you out pension every month after you have retired. Read more about the NPS scheme.
This is another advantage of the government job. The Earned leaves accumulated during the period of service can be encashed at the time of retirement. As per the current rules, a maximum of 300 ELs can be encashed at the time of retirement.
The money is paid out based on the last pay drawn just before the retirement. Assuming that your pay at the time of retirement will be at least thirty (30) times* your present pay, this amount in today’s money comes out at about Rs. 23,50,000/-. This amount is completely tax-free and will be paid out to you as a lump sum.
[* Your salary at the time of retirement will be at least 30 (thirty) times your present salary. This is not hocus-pocus. The officials who joined as a clerk in 1983 earned about Rs. 300/- per month at that time. Now after 35 years, at the post of an ITO, they are earning Rs. 90,000/- per month; 300 times their starting salary! During this period of 35 years, they have had 4 pay commissions, 4 promotions and about 40 increments which is pretty standard. So you see, our estimate of a factor of 30 is pretty conservative.]
Gratuity payment is a lump sum that your employer pays you as an acknowledgment of your loyalty to the department. It can roughly be calculated as half a month’s salary for every year of your completed service. The salary taken here is your last pay drawn (Basic pay + DA) just before the retirement. Let’s have a back-of-the-envelope calculation:-
Assuming your last (Basic pay + DA) is 30 times the (current basic+DA) = 30*50000 = 15,00,000/-
No. of years completed in service: 35.
Gratuity amount = 35*15,00,000/2 = Rs. 2,62,50,000/-
Adjusting for inflation (at the inflation rate of 6%), this comes out to be Rs. 34,15,261/- in today’s currency.
Note that the exact formula for calculation of gratuity is:- Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. We have just taken an approximation.
There is, however, a ceiling limit of Rs. 20,00,000/- to the amount of gratuity that can be paid to a public servant. This ceiling was earlier Rs. 10 lakhs but on the recommendation of the 7th pay commission, this has been raised to Rs. 20 lakhs. It is likely that 35 years hence, this ceiling may be raised to Rs. 50 lakhs or even more.
The amount received on gratuity is also completely tax-free as of the current rules.
Central Government Employees Group Insurance Scheme (CGEIS)
This is another government scheme where a portion of your monthly contributions paid while in service is credited in a Savings Fund, on which interest accrues. A Government servant while entering service has to apply in Form No. 4 of the above Scheme to the Head of Office, who shall issue a sanction for the payment of subscriber’s accumulation in the Savings Fund segment together with interest and arrange for its disbursement, soon after the retirement.
The amount of disbursal depends on the amount of money you choose to deposit every month while in service.
Hence it is clear that even by the conservative estimates, the total payout that you can expect after retirement adds up to: Rs. 1,00,20,000/- + Rs. 23,50,000/- + Rs. 34,15,000/- = Rs. 1,57,85,000/- approx in today’s currency. This is sufficient enough a corpus for you to retire comfortably without being dependent on anyone.
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Thanks for reading. Good luck and best wishes.
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