OROP, 7th Pay Commission pensioners: Experts say there is no need for retirees, both ex-servicemen and government pensioners, to take undue risks with their money.
The one rank one pension (OROP) demand in the Indian armed forces was accepted by the Narendra Modi government last year after protests from the ex-servicemen. The move has resulted in increased financial flow for the retired defence personnel.
The increased pension packet has started flowing in, while arrears credited to your bank account. The arrears were to be credited in four six-monthly installments over two years, with the first installment having already been credited to accounts few days ago.
The arrears payout is likely to substantially add to your bank balance since financial implications of OROP arrears is estimated at around Rs 10,925 crore. Besides this, the annual financial implication would be around Rs 7,488 crore. Nearly 16 lakh ex-servicemen had been given the first installment of OROP which amounted to Rs 2,861 crore.
Along with beneficiaries of OROP, there are around 52 lakh pensioners who retired from central government service, who would benefit from the 7th Pay Commission recommendations through hike in pension and arrears payout. It is expected that 7th Pay Commission recommendation could be notified in the days following the announcement of results of elections in 5 states on May 19.
So, what do you do with the higher monthly flow as well as the lump-sum that you receive as arrears? Two days ago, we gave suggestions to central government employees on what they should do with their increased pay and arrears. A lot of those prescriptions might not be applicable to OROP beneficiaries and central government pensioners. In your golden years, you need to be more careful with the money and take less risks.
“There is no need for retirees, both ex-servicemen and government pensioners, to take undue risks with their money, unless absolutely necessary,” Sanjeev Govila, CEO, Hum Fauji Initiative, a leading financial advisor, told FeMoney.
Here are a few prescriptions Govila has for retirees who stand to gain from payouts under OROP and 7th Pay Commission:
No undue risks needed: Being senior citizens, it is expected that they would be largely free of their family obligations, free of any compulsory requirement for wealth-creation and generally would have children fully settled. There is, therefore, no need for them to take risks with their money, if not required.
Invest in safe instruments for fixed income: They should generally go in for safe investing avenues like tax-free bonds, public provident fund (PPF) and debt mutual funds since stress should be on just topping the long-term inflation rates after tax.
Minimise taxation: They should invest to minimise their tax outgo. Even tax unfriendly avenues like bank and corporate FDs can be used intelligently to minimise taxation.
Invest portion in liquid investments: During your retired life, there might be instances when you need to access money at short notice, be it for medical expenses or other needs. Keep a portion of your money in liquid investments that can be accessed easily.
Consider increasing medical cover: Risks of incurring high medical expenses rise with age. Medical expenses may not appear to be critical for the 7th Pay Commisison and OROP beneficiaries since you will get monthly pension and generally life-time free medical facilities for self and dependents. However, if you aspire for better medical care than what government pension can buy or you do not quite like government-provided medical facilities, then you have to consider increasing your medical cover, provided you are in an age bracket where insurers provide you cover.