Mechanics of Payment of our Pensions monthly, and the DR, as and when it arises

FEDERATION OF RETIRED LIC CLASS I OFFICERS' ASSOCIATIONS          

President :    N.P. Bali 705, Sur, Veena Saaz, Thakur Complex, Kandivali (East), Mumbai - 400 101 Mob : 9820324213 Email Id - npbali@hotmail.com

General Secretary :    D Krishnan No.6/1, Sreshta Riverside Apartments, Wood Creek Road, Nandambakkam, Chennai - 600089 Tel : 9176635967 / 044 42850049. Email Id - dkrishnan1@gmail.com

E circular No.DK/21                                        27-04-2020

Friends,                 

Reg.... Mechanics of Payment of our Pensions monthly,         and the DR, as and when it arises

I came across a response from Sri C H Mahadevan to a point raised by Sri A S Ramanathan, regarding the mechanics of Payment of our Pensions monthly, and the DR , as and when it rises. I am not aware of the total picture of the matters raised by Sri A S Ramanathan in his message. However, I thought the clarity on the subject of how our Pensions are facilitated, by the system currently in vogue, will be of interest to all of us. We may know broadly that the Pensions and the increase in DR are paid out of the Pension Funds with the Pension Trust. The actual process may not be a matter of knowledge for most of us. Hence I thought, in these times of Lock-Down on our Brains, this would be some useful food for thought. Sri CHM's interpretation of how it happens, has so much clarity, on the moot aspects, of the conveyor belt that delivers it to you and me, I thought I should share it on this general Communication platform.    (ASR message can be seen in the Blog “LIC  PENSIONERS CHRONICLE OF SHRI P.G.GANGADHARAN” posted on 25-04 -2020)    With Best Wishes

 D.Krishnan.

Response to Mr AS Ramanathan's post – by C H Mahadevan

Referring to the post of Mr A S Ramanathan, in regard to the point of credit  of  the excess premium  to the Pension Fund under Rule 13(c), I have some reservations.

Rule 13( c)  states:

“The trust shall, in the event of the benefits payable under these rules being revised downwards for any reason whatsoever, credit the benefits received from the Corporation under the annuities purchased as exceed the benefits payable under these rules, to the Fund.”

The excess of premiums with the P & GS department under the annuities purchased by the Pension Trust will arise only when the financial benefits under the Pension Rules 1995 get reduced in future in the matter of defined benefits presently enjoyed by the pensioners. There is no concept of renewal premium being paid by the Trust to P & GS dept. for payment of pension. As and when an employee retires or dies with eligibility for pension, a single premium as consideration for annuity is paid to the P & GS dept. for payment of pension every month till death. As and when DR gets increased once in 6 months, additional amounts are paid for the annuities required for the additional payments. Similarly, for payment of revised pensions after wage revisions for pensioners who retired after wage revision dates, additional payments are made by the Trust to the P & GS dept. for additional annuity amounts payable. Similarly when a retiree dies and family pension is payable, an annuity is purchased for payment of family pension by paying a single lump sum for monthly family pension. So there is no scope in normal circumstances for P & GS to credit back to LIC Pension Fund unless the monthly pension of pensioners as a whole are reduced from the existing levels due to any amendments to the Pension Rules 1995 by the Government in exercise of its powers under Sec 48.

Otherwise, the amount paid by the Pension Trust is just adequate for payment of monthly pension as per rules. The obligation of LIC stops with keeping sufficient amount in the Pension Fund at the end of every year after actuarial valuation and it is the P & GS department which pays the pension on behalf of the Trust by an arrangement with Annuities taken for the purpose. LIC is not managing the fund as an employer. LIC as an employer has ensured that the Corporation’s  Contribution of 10% is paid into the Pension Fund and the additional contribution as salary  expenses  is made every year after the actuarial valuation. The Pension Trust has taken the responsibility for pension disbursement by LIC P& GS dept as an insurer to whom the Trust has paid consideration for annuities.

Even if a freezing of DR happens as done for Central Government employees, it will not affect the Pension Fund except at the time of actuarial  valuation conducted in the next financial year when such freeze will be factored before arriving at the additional contribution  to be made to the Pension Fund. May  be additional contributions to be made may be reduced  if DA &DR freeze takes place, but it will not affect existing Pension Fund and existing monthly annuities paid towards pensions.

If at a future date, based on actuarial valuation, because of the tapering nature of the pension beneficiaries owing to the Scheme being not applicable to post March 2010 new recruits, not only the additional contribution will  not  be required to be made ,but also the Pension Fund may be more than what is actuarially adequate. In such circumstances, such excess amount in the Pension Fund will be required to be transferred to the Revenue Account of LIC. But such a situation may happen only after decades.

C H Mahadevan

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with Greetings 

D.Krishnan

General Secretary