Hyderabad:17th December is observed as Pensioners Day in India to remember, with gratefulness, the late D.S Nakara, who fought for years to bring dignity and grace to the community, through the judgment.
History of the Day: It was on this day in 1982 that the Supreme Court delivered a landmark judgment guaranteeing dignity and decency to retired officials and pensioners. The day is observed in the backdrop of the historic verdict of the Supreme Court on pension on December 17, 1982. D. S. Nakara, who retired from the Department of Defense, approached the court after being denied pension benefits.
The liberal pension system implemented by the Centre in 1979 was relatively beneficial for pensioners. However, it was limited to those who retired after March 31, 1979. D. S. Nakara approached the court against this discrimination.
History of the Pension System in India:The history of the Indian pension system dates back to the colonial period of British India. The Royal Commission on Civil Establishments, in 1881, first awarded pension benefits to government employees. The Government of India Acts of 1919 and 1935 made further provisions. These schemes were later consolidated and expanded to provide retirement benefits to the entire public sector working population.
After several agitations by central employees, a comprehensive pension law was passed in independent India. It is known as the Central Civil Services (Pension) Rules, 1972. It was passed by Parliament after detailed discussion under Articles 148(5) and 309 of the Constitution.
A central employee with 33 years of service will get a pension of 50 per cent of the average salary of the last 36 months on retirement. Later, considering the demands of the organisations and accepting the recommendations of the Pay Commissions, the Pension Act was amended in 1972.
The Supreme Court in its 1982 judgment said that denying benefits on the basis of the date of retirement is a complete injustice, discriminatory and a denial of equality. The Supreme Court also ordered to provide benefits to those who came under the ambit of the Pension Act, 1972 and those who retired from the armed forces. That judgment is known as the Magna Carta of pensioners.
But instead of ensuring pension, the rulers adopted strategies to sabotage the existing pension scheme itself. The first NDA government, led by A B Vajpayee, implemented the participatory pension scheme instead of the statutory pension. Those appointed before January 1, 2004, and the armed forces were temporarily excluded from the new pension scheme.
The first UPA government led by Manmohan Singh was unable to introduce and pass the PFRDA (Pension Fund Regulatory Development Authority) in Parliament due to opposition from the Left. It was approved in Parliament on September 6, 2013, with the help of the BJP during the second UPA government.
Pensioners are facing more challenges after the Modi government came to power. The 7th Pay Commission recommended only one thing in favour of central pensioners. That was the option of providing equality to pensioners to some extent.
The Narendra Modi government rejected it citing unreasonable justifications. Under the guise of the COVID-19 pandemic, the dearness allowance of central employees and pensioners was frozen from January 2020 to June 2021. This atrocity was committed against pensioners who had voluntarily contributed to the Prime Minister's and Chief Ministers' Relief Fund.
The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the Unified Pension Scheme (UPS) in August 2024.
Features & Benefits of Pension Plans:You can get a fixed and steady income after retiring (deferred plan) or immediately after investing (immediate plan), based on how you invest. This ensures a financially independent life after retiring. You can use a retirement calculator to have a rough estimate of how much you might require after retiring.
Tax-Efficiency:Some pension plans provide tax exemption specified under Section 80C. If you wish to invest in a pension plan, then the Income Tax Act, 1961, offers significant tax respite under Chapter VI-A. Section 80C, 80CCC and 80CCD specify them in detail. For instance, Atal Pension Yojana (APY) and National Pension Scheme (NPS) are subject to tax deductions under Section 80CCD.
Liquidity: Retirement plans are essentially a product of low liquidity. However, some plans allow withdrawal even during the accumulation stage. This will ensure funds to fall back on during emergencies without having to rely on bank loans or others for financial requirements.
Vesting Age: This is the age when you begin to receive the monthly pension. For instance, most pension plans keep their minimum vesting age at 45 years or 50 years. It is flexible up to the age of 70 years, though some companies allow the vesting age to be up to 90 years.
Accumulation Duration:An investor can either choose to pay the premium in periodic intervals or at once as a lump sum investment. The wealth will simultaneously accumulate over time to build up a sizable corpus (investment+gains). For instance, if you start investing at the age of 30 and continue investing until you turn 60, the accumulation period will be 30 years. Your pension for the chosen period primarily comes from this corpus.
Payment Period:Investors often confuse this with the accumulation period. This is the period in which you receive the pension post-retirement. For example, if one receives a pension from the age of 60 years to 75 years, then the payment period will be 15 years. Most plans keep this separate from the accumulation period, though some plans allow partial/full withdrawals during accumulation periods too.
Surrender value:Surrendering one’s pension plan before maturity is not a smart move even after paying the required minimum premium. This results in the investor losing every benefit of the plan, including the assured sum and life insurance cover.
Tips to remember before buying a Pension Plan
- Estimate your future financial goal(s)
- Consider your current income and fix an amount to invest in the plan
- Research the available plans, read the benefits offered post-maturity and choose accordingly
- Understand the product thoroughly and then decide on investing
- Do not choose a product only because of tax benefits
