Pensioners Alert: How Senior Citizens Can Make The Best Use Of Their Pensions After Retirement

The world celebrated National Senior Citizens Day on August 21, honoring elders' contributions and raising awareness of their requirements at an old age. On this special occasion, let us understand the best way to utilize pensions that senior citizens receive after their retirement.

"There's a common misconception among investors that post-retirement, one should invest only in fixed-income products," Nilesh D Naik, Head of Investment Products, Share.Market said.

While it is true that a large part of the portfolio should be allocated to relatively safe products that provide regular income, it is equally important to ensure that investments keep pace with inflation, he added.

"This has become increasingly critical given rising life expectancy," said Naik.

Currently, there are various options that offer pension benefits to both government and private sector employees. These are:

1. 7th Pay Commission:

Under the current pay commission, minimum pension is offered at Rs. 9000 per month only to government employees. The maximum limit on pension is 50% of the highest pay in the Government of India (presently Rs. 1,25,000) per month. Pension is payable up to and including the date of death.

A government employee who has worked for 10 years before retiring is eligible under 7th CPC.

Under 7th CPC, the employee has an option to commute a portion of pension, not exceeding 40% of it, into a lump sum payment. Also, there is retirement and death gratuity available for these government employees.

Retirement gratuity is calculated @ 1/4th of a month's Basic Pay plus Dearness Allowance drawn on the date of retirement for each completed six monthly period of qualifying service. There is no minimum limit for the amount of gratuity. The retirement gratuity payable for qualifying service of 33 years or more is 16½ times the Basic Pay plus DA, subject to a maximum of Rs. 20 lakhs, as per the government website.

2. Unified Pension Scheme (UPS):

UPS has come into effect from April 2025, and is an optional scheme for NPS subscribers but available only for government employees. Under UPS, following benefits are offered:

- Assured pension: 50% of the average basic pay drawn over the last 12 months prior to superannuation for a minimum qualifying service of 25 years. This pay is to be proportionate for lesser service period upto a minimum of 10 years of service.

- Assured family pension: @60% of pension of the employee immediately before her/his demise.

- Assured minimum pension: @10,000 per month on superannuation after minimum 10 years of service.

- Lumpsum payment (one time) one-tenth of last drawn basic pay and dearness allowance thereon, for each completed six months of qualifying service.

- Monthly Top-up amount is calculated based on admissible UPS payout + Dearness relief (DR) minus representative annuity amount under NPS.

- Arrears with simple interest as per applicable PPF rates.

3. National Pension Scheme (NPS):

NPS is available for all employees irrespective of sectors. This means private employees can also receive pension under NPS.

NPS is a market-linked defined contribution scheme that helps you save for your retirement. The scheme is simple, voluntary, portable and flexible. It is one of the most efficient ways of boosting your retirement income and saving tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way.

NPS provides a lifetime pension. Upon retirement, the accumulated corpus is used to buy an annuity plan, ensuring regular pension payments for the rest of your life, as per Bajaj Finserv blog.

4. Employees Pension Scheme (EPS) 1995:

This is available for both government and private sector employees.

EPS, 1995 is a Social Security Scheme. The corpus of the Employees' Pension Fund is a combination of --- contribution by the employer @ 8.33 per cent of your basic wage; and (ii) contribution from Central Government through budgetary support @ 1.16 per cent of wages up to an amount of Rs.15,000/- per month.

5. 8th Pay Commission:

The government is expected to implement 8th Pay Commission in early 2026, which will replace the benefits of 7th Pay Commissions. As per reports, under 8th CPC, central government employees and pensioners could see 30-40% jump in their salary or pensions.

Where Should You Use Your Pension?

As per Naik, allocating a small portion of the portfolio to asset classes with higher growth potential, such as equities, makes a lot of sense. Even for individuals receiving a pension, it is prudent to invest a small portion in equities - particularly from money that is not required for at least the next 5-7 years. Such equity exposure can be taken through equity mutual funds in core categories such as large-cap, flexi-cap, or index funds.

According Bajaj Finance AMC, here are the following details on index fund, large-cap fund and flexi-cap funds:

1. Large-Cap Funds: Large cap funds are a type of equity fund that mainly invests in stocks of well-established companies. These companies are usually industry leaders with substantial market capitalization (top 100), which might make them relatively stable investment options.

2. Index Funds: An index fund aims to mirror the performance of a specific financial market index, subject to tracking error. Unlike actively managed funds, where fund managers select individual stocks, index funds passively track the index's movements. They represent various market segments, such as large cap stocks or specific industries.

3. Flexi-Cap Funds: Flexi cap funds are actively managed mutual funds that have the flexibility to invest across the spectrum of large-cap, mid-cap, and small-cap companies, based on the fund manager's view of market dynamics and stock potential.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.