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Pension liability calculator
Estimate the pension liability of a single employee in the Indian context.
Home / Pension Calculator
Estimate the pension liability of a single employee in the Indian context.
Important information
Please read the complete rules, assumptions, limitations and disclaimer. Acceptance is required before the calculator can be used.
The purpose of the pension calculator is to estimate the liability of an employer who promises a pension to active employees. Although the pension calculator reflects the broad plan features of Indian Public Sector Enterprises, other employers offering defined benefit pension may also find the liability estimate to be useful. The results are subject to the assumptions outlined and would hold only if the pension is expressed as a percentage of the last drawn pensionable salary at exit.
Each field needs to be updated by choosing a value from the drop down menu, except for the ‘Yearly Pensionable Salary’. The ‘yearly pensionable salary’ that is currently drawn by the employee needs to be entered manually. This is the annual salary to which the ultimate pension is linked. After having updated all the fields, please click on ‘Calculate Pension Liability’. Refresh the page if you wish to re-enter a different set of combinations or click on the ‘Reset’ tab if you have to evaluate the pension liability for a different set of values.
Pension is expressed as a proportion of the last drawn pensionable salary at exit, and is subject to various assumptions viz.
Each of these assumptions takes a limited set of values. The user may choose from the range of values appearing in the drop down list.
Considering the low employee withdrawal rates experienced by Indian Public Sector Enterprises the impact on the liability due to withdrawal is likely to be minimal, and has hence vesting been ignored. The option offered to employees to commute pension is considered to be neutral to the valuation results i.e., the payout matches the present value of the pension commuted.
As per the terms of reference of the Sixth Pay Commission as contained in the Ministry of Finance (Department of Expenditure) Resolution No.5/2/2006-E.III(A) dated 5.10.2006, the accrued pension is calculated as “Number of years served/40*Pensionable salary at retirement”, subject to a maximum accrued pension at 50% of Pensionable salary at retirement.
In the case of Indian public sector banks, the accrued pension is calculated as “Number of years served/66*Pensionable salary at retirement”, subject to a maximum accrued pension at 50% of Pensionable salary at retirement.
Family Pension has been considered in the liability estimate. For this purpose, the female (male) spouse of the male (female) employee is assumed to be five years younger (older). It has been assumed that the surviving spouse is the beneficiary of reduced pension at a 50% rate. Family pension to children of the deceased pensioner is ignored.
The liability calculation allows for a 20% increase in the amount of pension receivable after the age of 80 by the main pensioner or his/her spouse. However, this ‘additional pension’ is likely to have an insignificant effect on the liability.
As pension plan features could vary between employers, the actual valuation results could be different. The liability returned by the tool is likely to be an approximate reflection of the actual liability of the employer. To ensure a balance between simplicity and accuracy, standard rule-sets underlie the pension liability calculation e.g. minimum absolute pension is not allowed for.
The pension calculator does not substitute the detailed actuarial valuation. Its purpose is to enable an employer to understand with a broad brush the likely pension liability and the impact of a change in any of the assumptions on the ultimate pension liability.
A detailed actuarial valuation would ensure that the plan specific features are modelled. The results of the Pension calculator could differ markedly from those arising from the detailed actuarial valuation if the plan benefits and features are materially different.
The tool is a mere guidance to employers who offer defined benefit pensions. It is customised to compute the estimated liability based on standard benefits as offered as per the terms of reference of the Sixth Pay Commission as contained in the Ministry of Finance (Department of Expenditure) Resolution No.5/2/2006-E.III(A) dated 5.10.2006, and adopted by Indian Public Sector Enterprises.
The tool is neither meant to substitute the pension scheme valuation results nor does it offer actuarial advice to its users. At best, the tool is indicative of pension liability and can be used to test sensitivity to various parameters within the permitted values. Ankolekar & Co. expressly prohibits users to consider the tool’s results for financial results, and is not responsible if users take decisions based on the tool’s output.
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