What is Retirement ?

Retirement is the process of separation of employees from the organisation when they have reached at a predetermined age. The predetermined age in organisations is usually 58-60 years. When an employee attains this age, he is discharged from rendering his services to the organisation. It is the sole responsibility of an -organisation to have clear rules for the process of retirement. The organisations should also assist the employees to adjust after retirement. The problem of unemployment is solved through retirement because as the employees of an organisation retire, the job positions become vacant thereby providing an opportunity to the fresh candidates to apply for the vacant positions and grab the job. 
Retirement is an important phase in the life of an employee and it also leaves a significant effect on the organisation where he has devoted many years of his life. Therefore, a retired employee must be honored and various retirement benefits like gratuity insurance, provident fund, etc., must be given to him as soon as possible. Some organisations also give monthly pension to its retired employees, along with the other benefits.

Definition of Retirement

According to Daniel Feldrnan :
"Retirement is the exit from an organisational position or career path of considerable duration, taken by individuals after middle age, and with the intention of reduced psychological commitment to work thereafter".

Types of Retirements

Retirements can be of following types : 

1) Premature Retirement : 
This type of retirement is given to an employee if he becomes physically challenged because of any accident or illness. The organisation can offer retirement to the employee before the employee has reached the predetermined age of retirement by providing all the retirement benefits.

2) Forced Retirement : 
This type of retirement is given to an employee, if he has violated certain employment terms, or he is involved in any serious kind of misconduct for which he is found guilty and his charges are proved in the court. In such a case, the organisation can force the employee to opt for retirement, before the retirement age, without providing any retirement benefits to him.

3) Compulsory Retirement : 
In this type of retirement, an employee has to retire compulsorily after reaching a predetermined age. The age for retirement in State and Central Government is 58 or 60. However, in private organisations, an employee can work until he finds himself appropriate to perform the work and organisation can also re-appoint the employee.

Impact of Retirement on Organisation

Impact of retirement on the organisation is as follows : 
  • From the organisation's perspective, retirement can be a very positive process. It allows new employees with up-to-date skills to enter the organisation and replace older workers whose skills may have become obsolete. 
  • Retirement also motivates remaining employees because older workers tend to be higher in the organisational hierarchy and their departure provides opportunities for promotion. New employees also typically cost less than older workers because their salaries are lower. 
  • Not all effects retirement are positive, however. The loss of older workers may increase the level of uncertainty with which the organisation must contend. In an increasing number of cases, well-qualified replacements for retiring workers are extremely difficult to find. When older workers leave, they take with them a wealth of knowledge about the organisation's processes, operations, and technology. The contacts and influence they have built-up in dealing with the environment are also lost.

Benefits of Retirement

Benefits of retirement are as follows : 

1) Stress Reduction : 
Jobs are a major source of stress for many people, and retirement may offer relief. By removing the need to perform to a high standard and meet specific targets, or the anxiety that may come from interacting with superiors and customers, retirement can be good for a retiree's mental and physical health.

2) Health Benefits : 
Because it usually occurs late in life, retirement is often associated with time of poor or fading health. However, retirees have more time to sleep, exercise, and choose or prepare healthful foods, making retirement an opportunity to actually improve overall health. Many retirees take-up an athletic bobby, such as golf or walking, which can easily be carried over into later life and promote longevity.

3) Philanthropy : 
Many retirees use their new-found free time and accumulated wealth to become involved in philanthropic activities. From making charitable donations to serving on the board of a community foundation, this type of activity provides a chance for retirees to use the skills and experience they developed over the course of a lifetime to meet the needs of the community.

4) Family Involvement : 
Retirement offers the advantage of allowing more time and energy to spend with family members. The classic instance of retired grandparents serving as babysitters is only the most common example. Retirees can use their new lifestyle to spend more time with adult children, distant family members, retired siblings, and close friends.

5) New Lifestyle : 
Finally, retirement has the advantage of being one of the few times in life when many people can freely re-arrange their lifestyle and its priorities. Spending niore time on a hobby, following an intellectual pursuit or travelling can define an entirely new way of life, especially if a career dominated much of a person's time commitments prior to retirement.

Problems of Retirement

Problems of retirement are as follows :

1) Boredom : 
Many retirees call it a career, only to find that they are incredibly bored sitting home each day. Workers should consider the potential for boredom carefully before turning in their resignations. Taking-up a new hobby before retirement is one of the best ways to combat boredom.

2) Lack of Personal Interaction :
Many retirees find that what they miss most about their jobs is the day-to day interaction with their co-workers. Going from full-time work to full-time retirement can be quite a shock, especially for hardworking and outgoing individuals. Before retiring, it is a good idea for workers to make a list of the things they like most about their jobs. Chances are day-to-day interaction and intelligent conversations will be on the list. Workers who find that they miss the daily interaction with their bosses and co-workers might want to consider a part-time job to provide the stimulation they are missing.

3) Economic Insecurity : 
Retiring too soon or being forced into early retirement can leave one feeling unsure and insecure about his economic situation. While social security provides a cushion for older retirees, those funds are rarely enough to provide a comfortable retirement. Workers who retire before they are eligible for social security will need to rely on the nest eggs they have built during their working years, and if those funds do not stretch far enough, those early retirees might find themselves heading back into the workforce.

Retirement Plan

What is Retirement Planning ?

Retirement is the discharge of an employee from his services at the attainment of a certain type of predetermined age. Every organisation should have clear-cut rules as to the retirement and should also help the employees for adjusting after retirement. The provisions of retirement help in solving the problem of unemployment in the country.

Retirement plans are also an important part of compensation package. It may be defined as an arrangement to provide employees with an income during retirement when they are no longer earning a steady income from employment. It is a savings and investment plan that provides income during retirement. It is often created by companies or the government for employees.

Retirement Plans

Types of Retirement Plans

Various types of retirement plans in India are as follows :

1) Defined Contribution Plan : 
This plan is one in which the employer pays a fixed contribution (e.g. 10% of basic salary) into a separate entity or fund and its obligation is limited to that contribution. The employer is not required to contribute further if the fund does not hold sufficient assets to pay all the employee benefits relating to employee service on the current and prior periods. In defined contribution plan the financial risk are borne by the employee. The amount of benefit depends on the performance of plan assets.
For example, the defined contribution plan is the provident fund, another example is the contributory pension plan introduced by the Government of India for its employees in 2004. These are detailed below :

i) Provident Fund : 
Provident fund is a scheme where the employee contributes a sum of money from his monthly salary towards savings. Similarly the employer will also contribute some amount to the account of employee. The interest earned out of this contribution is also credited to his account itself. If an employee wants to get a loan during his service then the employee can apply for and get the same from his account. The accumulated sum of money to the employee's account will be paid to him at the time of retirement. In case of death of the employee, the sum of money will be paid to his/her legal heirs.

The provident fund was originally set-up in a bid to provide monetary security to employees when they retire. Too often, people find that the golden years of their life are years marked by financial inadequacy and dependency on relatives or children. The provident fund is designed to provide the retiring individual with dignity and security. However, it has, over the years, developed into a broad plan for social security which covers the retirement, buying houses, medical expenses, and related expenses.

With reference to this scheme, the Employees' Provident Funds Act was passed in 1552. Initially applying to workers/ employees in six major industries whose monthly pay did not excess 300, the Act applied to in as many as 172 industries/classes of establishments at the end of 1981 whose pay did not exceed 1,000. The Employees Provident Fund and Miscellaneous Provisions Act, as it stands today, provides for institutions of Provident Fund, Family Pension Fund (since 1971) and Deposit-Linked Insurance Fund (since 1976). Accordingly, three schemes have been framed under the Act, viz, EPF scheme, Family Pension Scheme and Employees' Deposit-Linked Insurance Scheme. All these schemes are administered by the Central Board of Trustees consisting of nominees of the Central and State Governments and organisations of workers and employers. The C.P.F. Commissioner is the Chief Executive Officer of the EPF organisation functioning as Secretary to the Board. There are various regional and sub-regional offices for administering these schemes.

ii) Pension : 
A pension is a financial arrangement to ensure a steady income for people when they are no longer in a position to earn income from employment. With life expectancy on the rise, investing in pension schemes has become ever more prudent today. It is defined as a regular payment made to a person after the fulfillment of certain conditions of service, usually upon retirement. The usual reasons. for providing a worthwhile pension scheme are that it :
  • Demonstrates that the organisation is a good employer. 
  • Attracts and retains high quality people by helping to maintain competitive levels of total remuneration. 
  • Indicates that the organisation is concerned about the long-term interests its employees.
The Government of India actively promotes various pension schemes for the citizens. Tax deductions are offered on pension schemes order to encourage people to save money in pension funds. In May 2009, the Pension Fund Regulatory and Development Authority (PFRDA) launched the "National Pension Scheme" (NPS) for all citizens of India in the age group of 18 to 55. Under this scheme, money invested in the pension fund during the working life of the investor will come back partly as lump-sum, and partly as an annual payment or pension.

2) Defined Benefit Plan :
As the name implies under a defined benefit plan, the benefit to employees is defined. Therefore, under such a plan, the employer has the obligation to provide the agreed benefits to current and former employees. For example, gratuity is a defined benefit plan. Under this scheme, the amount of gratuity payable to an employee is determined based on the period of service and last pay drawn. It is not linked to the contributions by the employer over the period of employment or on the plan performance of the assets.

Prior to the enactment of the Payment of Gratuity Act, 1972 there was no legal compulsion for the employer to pay any gratuity to the employee. Payment of gratuity by an employer to an employee as defined under the Act is mandatory. Section 4 deal with circumstances in which gratuity becomes payable to an employee and the cases when gratuity may be forfeited. Section 4 provides that Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5 years :
  • On his superannuation.
  • On his retirement of resignation.
  • On his death or disablement due to accident or disease.
The condition of completion of service of five years shall not be necessary where the termination of employment is due to death or the disablement of the employee. In the case of death of the employee, gratuity payable to the employee shall be paid to his nominee, or if no nomination has been made, to his heirs.

According to Section 4(3) of the Act, the amount of gratuity payable to an employee shall not exceed 10,00,000. The Amendment Act of 1994 replaced the existing ceiling of 20 months' wages for payment of gratuity by a monetary ceiling of Rs.50,000. The Amendment Act of 1997 has raised it to Rs.2,50,000, it was further raised to 23,50,000 and now the Amendment Act, 2010 has raised it to 10,00,000.

3) Voluntary Retirement Plan : 
The Voluntary Retirement Scheme (VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a generous, tax free severance payment to persuade the employees to voluntarily retire from the company. It is also known as "Golden Handshake' as it is the golden route to retrenchment. Though the eligibility criteria for VRS varies from company to company, but usually, employees who have attained 40 years of age or completed 10 years of service are eligible for voluntary retirement. This scheme applies to all employees including workers and executives except the Directors of a company.

Importance of Retirement Plans 

Employers provide retiree plans for a number of reasons which are as follows :

1) Paternalism : 
The employer may accept an obligation to take care of, or to reward long-service employees.

2) Extension of Active Employee Benefits : 
Retiree benefits may be considered as a natural extension of the active employee benefits.

3) Competitiveness : 
Retiree benefits may help employers to attract and retain employees, particularly employees with longer experience.

4) Negotiation : 
Retiree benefits are often part of a union-negotiated package.