Lump Sum Annuity

The normal question a person on the verge of retirement would ask is: “how much is my Annuity worth?” He would require this information so that he can plan his future; he can prepare a balance sheet and adjust his monthly family budget accordingly. By this he knows where he stands after retirement.

Pension contribution is monitored by the department of Pensions. Normally, all those who are entitled for pension are contributors to pension plan and therefore they are also the participants in the pension plan. The normal retirement age is 65. Once a year, the Pension department provides the details of the Annuity’s worth. But this is given only against a written request from the participant in the pension plan. The estimate of annuity worth is based on present market value. By this he can make an estimate of what could accrue in his pension plan and based on this ‘supposition’ the employee will know “how much is my Annuity worth?” Given the behavior of market there are chances of wide fluctuations. So, the ‘How much is my annuity’ at a future date depends on many ‘ifs and buts’. Whatever calculations made are only estimates.

Different pension plans:

Mainly there are two types of pension plans, namely Contribution Plan and Benefit Plan. It is easy to ascertain the Lump sum Annuities worth under contribution plan. But under the benefit plan annuity worth is determined by a different approach. The employee is credited with some particular units based on the service and it will be translated to monetary value once the employee retires. The calculation of Annuity worth midway will be just based on the present market value. As said earlier, it is very difficult to evaluate the market behavior and accurate value cannot be arrived at. According to the Pension rules, the calculation of Annuity worth can be done only for those employees who have turned vested. The employee becomes vested only when he has completed a fixed period of minimum service in the organization.

The worth of annuity also depends on the length of service. For example, those who have completed 10 years of service are entitled for the routine retirement benefits. As per pension plan, such employees are not entitled for any other benefits. But those who have completed more than 10 years of credited service are entitled for benefits of early retirement and it is calculated for a retirement at the age of 55 years. Here the annuity worth would be more. Those who have put in more than 25 years of service are entitled to retirement benefits calculated at the normal retirement age and that is 65 years. Naturally the annuity worth is considerably higher in this case. To sum up, the annuity worth depends on many factors like when the person has become vested, length of service and the age of the employee. It is an accepted fact that the benefits offered today are much more than what they were decades ago. The salary has increased, more and more benefits are offered; both for those who are in service and for those who are retired. Whatever benefits available to those who are in service are extended to those who are retired. So, going by the present situation, one can certainly aspire for a better annuity worth in the subsequent years.

Calculate on your own:

The pension plan booklet is so user friendly that it allows the employee to calculate “how much is my Annuity worth?”. He need not depend on the pension department in this regard. All that the employee has to do is to fill up certain information as provided in the concerned questionnaire. Then he will get the information about his annuity worth. The questionnaire is so user friendly that it is possible for the employee to calculate the benefits which he would get if he were to retire early.

Helpline:

The pension department has several branches to calculate “how much is my Annuity worth?” spread over various places which are manned by efficient staff. There are field benefit representatives who are specially trained to assist the employees to calculate the annuity worth at any given point of time. These representatives even visit the local offices and they with their experience will be able to provide fairly reasonable estimate of the annuity worth. But, the truth is that all these are estimates and till such time the employee actually retires, stops working as a laborer and files an application for payment of benefits; it would be very difficult to make the precise calculation of “how much is my Annuity worth?”.