OMOP Dilemma

Arising out of the OMOP option extended to the retirees who missed exercise of the option on two earlier occasions,considering that 1.3 times the PF  & interest received  has to be refunded by the optees,there is a dilemma apparently experienced by some of the retirees.Although I am not sure of the generation of retirees who mostly missed the option earlier,I presume that majority of them must be from among those who retired after 1/8/2002.

Many of the retirees-especially those who have not been keeping good health and/or those without spouses whether it is worthwhile to pay a sizeable amount by way of refund of PF & interest in return for the pension that they will receive  during the rest of their lives.Although availing the commuted value of one-third of the pension is not a bad idea,the factor for commutation would by considerably less than at the time of retirement.For a retiree of say,September 2002,the commutation factor for ANB 77 will be 4.90 as against 9.81 on the date of retirement.

The wisest course for any optee will be to play safe and explore all the positive aspects of exercising the option and taking good care of his/her health so that the amount paid to LIC gets recovered as early as possible.

But if some retiree wants to actuarially judge the viability of the exercise of option,it can be roughly done by comparing the amount that will be refunded to the LIC with the commuted value of the full pension  using the commutation factors given in the pension rules plus the present value of the DR that will be received by working out the commuted value by arriving at a nominal equated installment of DR by taking an average increase of DR of 20% over 15 years by using  a suitable  compound interest a/n factor for the notional  equated DR installment  for a rate of interest at 7% which is a safe rate that can be taken.

If the amount refunded to the Corporation is less than  the sum of the commuted value of pension and the commuted value of the  yearly sum of equated DR installments  applying the commutation factor,then the option is actuarially viable.

But I would like to caution that there  will be an uncertainty as far as the individual retiree is concerned.The following additional factors will suggest that exercising OMOP will make better sense:

1.The SLPs before the Supreme Court for upgradation of pension providing hopes  of a favourable verdict.

2.The possibility of an additional pension for pensioners aged 80 and above even outside the Supreme Court outcome.

3.Possibility of a revision in family pension to 30% of last pay as a result of litigation or otherwise.

4.Grace of God for longevity.

The above are the thoughts I wanted to share with OMOP aspirants.

C H Mahadevan