A year-end gift has arrived for public sector employees, in the form of better pension and retirement allowances. The government has told public sector companies that their total spend on pension and health benefits should be 30% of the current wage bill.
Till now, all companies paid out much below 30% of their total basic pay plus dearness allowance towards terminal benefits for retired employees. The reason is simple. While retired employees get pension graded to their last pay drawn plus health benefits and gratuity, the sum of those is less than 30% of the cost to company for basic pay plus dearness allowance. In other words, while employees were apparently not being shortchanged, the companies had omitted revising the benefit for retired employees as per the 30% formula.
The omission came to light when the department of public enterprises did an actuarial calculation of its future liabilities with Towers Watson, a company specialising in the field. Following this, the DPE issued a circular this week asking all public sector companies to revise terminal benefits to 30% of each company?s? basic pay and DA bill. Surprisingly, this was mandated by the second pay commission for PSUs but never implemented.
The total salary bill of central public sector companies was Rs 82,735 crore in 2008-09, as per latest data available with department of public enterprises.
Speaking about the development, Kulin Patel, head-benefits & actuary at Towers Watson said: ?Companies need to be careful about designing their features for terminal benefits, allowing for the long-term nature of the liabilities.? Patel said he would expect the salary and wage bill of the leading PSUs to rise by at least 10%. This means total employee cost as a percentage of operating profit that is currently at 2.5% should rise to nearly 3.5%.
DPE also raised gratuity to Rs 10 lakh. In its order dated December 29, 2010, it directed all central government-owned companies to frame their own pension schemes incorporating the increase in pension and gratuity.
Superannuation benefits include provident fund, gratuity, social security schemes like pension scheme and post-retirement medical facilities.
The Second Pay Revision Committee for the public sector sought pension schemes in its report submitted in 2008. It said the contribution by employees to pension benefits must be invested, among others, through insurance companies for better returns on pension and gratuity funds.