Pensions and Retairement Future Trends and Options - Essay Example

Pension is generally calculated depending on the Basic Pay and the Dearness allowance of the employee's salary. An employee gets his pension till his life time, after which the amount is given to their spouse. In some companies, pensions come with an additional insurance coverage which helps the pensioners or the disabled beneficiaries. Pension ensures the employee with a standard income that helps the family. The amount is based on his last designation. It is beneficial to the employee as it is tax free.

Pension is a sort of moral support and security which helps them to lead a peaceful life. A government employee should retire from the organization at the age fixed by the respective departments. The age of retirement may differ from one company to another. Retirement is of various types like retirement on Superannuation and Voluntary Retirement Scheme. Superannuation is a form of retirement where the employee gets retired at the age as fixed by the organization. Voluntary retirement scheme is a form in which the employee leaves the organization after some 10 or 20 years, depending on the norms of the organization.

(Mendel 2009).In this scheme the employee need not work till his retirement age. If an employee opts for this, he will get the pension amount and the proportionate lump sum amount for the remaining years of service. The government has changed this procedure and the employee retiring before his retirement age will get only the gratuity and other benefits in addition to the pension. In the normal retirement scheme, the person serves in the organization till the fixed age and then retires. He will then get the Provident fund amount.

Retirement benefits include leave encashment, retirement gratuity and his contribution to the provident fund. Senior citizens are also eligible for all these benefits that help them to lead a problem free life after their retirement. There are other types of pension like extraordinary pension scheme which is given to disabled employees or in case an employee loses his life during his job tenure, the amount is given to his family. Retirement pensions are a guaranteed form of income for the people.

Defined benefit and Defined contribution are the two classifications of retirement plans. Defined benefit plan ensures a certain amount at the time of retirement which is fixed based on the person's salary and years of service. Defined contribution plan gives an amount on retirement which depends on the money that he has contributed and his investments are included. (Copeland 2003). In some countries, defined benefit and defined contribution plan are combined and offered to the people after retirement.

Defined benefit plans comes as a package inclusive of early retirement options. This allows the employee to get retirement before their retirement age is attained. Most of the employees prefer the defined contribution plan instead of defined benefit. Here the money a person gets is purely based on his investments and contributions and the employer does not assure a specific amount. This is an advantage to the employers as they need not guarantee an amount. When compared to this defined benefit plan is more beneficial since the employee gets a certain amount based on the average salary and this does not depend on the individual's investment.

Defined contribution gives the amount as one lump sum where as defined benefit