Civil servants pensions

From Indiapensions

rolric Civil servants pensions in India underwent reform starting January 2004, with the introduction of the New pension system, a defined contribution scheme for new entrants to the Central Government. This was introduced in response to the growing pension bill of the Central Government and with a view to integrate pension provisions for the formal and informal sectors in India.

In the past, civil servants pensions have known to be the most generous of occupational pensions in India. The pension scheme is primarily a wage indexed defined benefit scheme which offers a 50% replacement rate. This scheme continues for the old employees. As of 2004 there were about 14 lakh employees in the civil services.

Table of contents
1 Legislation
2 Operational Framework

2.1 Benefits

2.1.1 Non contributory benefits
2.1.2 Contributory benefits
2.1.3 Other benefits

2.2 Taxation

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Legislation

Matters relating to social security are listed in the Directive Principles of State Policy and are subjects in the Concurrent List. The retirement benefits for Central civil service employees are administered by the provisions of the following Acts/rules:

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Operational Framework

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Benefits

The retirement benefits for the Central civil service employees can be broadly classified into

  • Non contributory benefits.
  • Contributory benefits.
  • Other benefits.
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Non contributory benefits

The non contributory retirement benefits for the Central civil service employees are pensions and gratuity. These are a function of the the following two factors:

  • The length of the qualifying service.
  • The manner of termination of the service.
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Contributory benefits

The contributory benefits for a Central civil service employee are provided through one of the two provident funds run by the Central Government. These are

The option of participating in the Central Provident Fund (CPF) was however removed since 1986. Central civil service employees, after a qualifying service of 1 year are eligible to become a subscriber to the General Provident Fund. Subscribers to the GPF have to subscribe a fixed portion of their emoluments on a monthly basis. At the end of their service, they get the accumulated amount with the interest thereon. Subscribers to the GPF are also eligible to get the non-contributory benefits mentioned above. Subscribers to the CPF are not eligible for pension benefits.

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Other benefits

These are like non-contributory benefits. However they have some special characteristics, that make them a little different from non-contributory benefits. There are two main kinds of benefits

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Taxation

The monthly pension an employee receives after retirement is taxable.

The following components of the retirement benefits are exempted from taxes:

  1. Death-cum-retirement gratuity or any other gratuity. This is exempt to the extent specified, from inclusion in computing the total income under clause (10) of section 10 of the IT Act.
  2. Any payment in commutation of pensions received under the civil pension rules or under any similar scheme which is applicable to Central civil service employees. The exemption is subject to the condition that (a) in case where the employees receives any gratuity, the commuted value does not exceed one third of the pension which he is normally entitled to receive and (b) in any other case, the commuted value should not exceed half of such pension.
  3. Cash-equivalent of the leave salary in respect of the period of earned leave to his credit at the time of his retirement on superannuation or otherwise.
  4. Compensation received at the time of voluntary retirement. This is subject to the fulfillment of the following conditions:
    1. The employee availing voluntary retirement should have completed ten years of service or completed forty years of age.
    2. The voluntary retirement scheme should apply to all employees including workers and executives, except the director of a company. The scheme of voluntary retirement should aim at reducing the strength of employees.
    3. The vacancy created by voluntary retirement is not filled up and the retiring employee is not employed in another company or concern belonging to the same management.
    4. The amount of compensation received by the employee should not exceed the amount equivalent to three months' salary for each completed year of service or the value of monthly emoluments at the time of retirement weighed by the reciprocal of balance months of services left at the time of retirement.


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