Ø Pension- a monthly sum paid in arrears at the end of
month
Ø Gratuity- a one-time lump sum payment made on the
date of retirement
Pension
Formulas (Section 50 & 51- Pensions Act 2014)
If
employment commenced before 2004:
Full Pension= N/600 x Annual Pensionable
Emoluments + N/960 x Annual Pensionable Emoluments
If
employment commenced on or after January 1, 2004:
N/960 x Annual Pensionable Emoluments
Rate
of annual pension earned in the first formula is 2% per year (1/600 x 12 x 100)
and in the second is 1.25 % (1/960 x 12 x 100).
Explanation
of variable used in the above formulas
N
= years of service converted to months of service
600
and 960 = fixed Actuarially determined values
Gratuity
Formula (Section 58- Pensions Act 2014)
In
both cases, gratuity is obtained using the following formula:
Gratuity = Full Pension x 0.25 x 12.5
Opting
for gratuity means that full pension (100%) must be reduced to (75% or 0.75)
Numerical Example
An
employee commenced work on January 1, 1985 and retires on December 31, 2014.
The employees has a total of 30 years of service. On the employee’s sixtieth
birthday, an option to receive a gratuity and a reduced pension is made. At
retirement the employee was receiving an annual salary of EC$80,000.00.
Years
prior to 2004 = 19 or 228 months
Years
after 2004 = 11 or 132 months
Full
Pension 228/600 x 80,000 = EC$30,400.00
132/960 x 80,000 =
EC$11,000.00
Total Full Pension = EC$41,400.00
This
employee would have received annual pension payments of EC$41,400 or EC$3,450
per month.
Gratuity EC$41,400 x 0.25
x 12.5 = EC$129,375
Reduced
Pension EC$41,400 x 0.75 = EC$31,050 per year or EC$2,587.50
Section 41(Pensions Act 2014)
·
Maximum Pension
The
maximum that one can earn is 2/3 of annual pensionable emoluments. In the above
case 2/3 x 80,000 = EC$53,333.00 per year. The above employee did not reach the
maximum pension.
·
Social security
Offset
If
the pension received by an employee from the Public Service Pension Fund is
added to that received by the Social Security Board and the total exceeds 80%
of highest pensionable emoluments previously earned, the amount of pension paid
by the PSPF can be reduced.
*adapted from the PSPF
*adapted from the PSPF
1 comment:
There are a number of inconsistencies in how pension is calculated. The first and most obvious is that fact is that there are three pensionable ages, that is ages at which you can retire, but only two formulae for calculating pensions. The ages are 55, 60 and 65 years, for each of those ages there should be a formula.
The other this that is wrong with the formulae which is included within the legislation and the assumptions made are as follows. The first assumption made is that an employee can earn more than two-thirds of their pensionable salary, but then you go on to say that accrue at a 2% annual rate. That is BS, since it is a contributable pension and the employee gets out of what they contribute base on an agreed formula.
The next thing that is wrong, are the divisors 600 and 960 that are used in the formulae shown. It is indicated that those numbers were determined based on the actuary, what actuary are you referring to? that is fallacious, as there were none done to determine such.
The critical information which is need is the following:
1. The minimum legal age at which a person can join the pensionable public service;
that will help to determine the devisors used in the formulae shown along with the fraction of the salary that will be used to calculate the persons pension. In the example given, it is said that an individual should not receive more than two-thirds of the pensionable salary. Therefore if 18 years is the minimum legal age at which anyone can enter the pensionable public service, the maximum number of years/(months) that person would be able to within the public service would be 37 years or(444 mths) if retiring at 55 years and 47 years or (564 mths) if retiring at 65 years. Then the divisors for the formulae in question would calculate to be 660 and 846 respectively.
The other formula where a person would retire at age sixty, the pension for the period between 1st January 2004 and their 60th birthday has to be calculated on an individual basis as the number of years/months between 1st January 2004 and their retirement will vary from individual to individua. It should be noted that this service is continuing service not starting service. the formulae provided is for starting services.
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