When it comes to retirement, there are two types: superannuation and voluntary. Superannuation retirement is when you retire as per the intended age of retirement. Usually, this age is 60 years of age for govt. employees. For private employees, this could be between 58 and 62 years of age. However, many people opt for voluntary retirement nowadays. While voluntary retirement scheme (VRS) might seem attractive to many while doing their retirement planning, it is always better to have proper knowledge. Read on to know more about VRS, its features, retirement benefits, and whether should you opt for it or not.
What is a retirement plan?
A retirement plan is a type of plan that is designed to provide you with financial stability post-retirement. When you invest in this plan, you get a fixed incomeonce you retire. This income helps you cover the essential expenses that are there once you retire. This also safeguards your savings for future purposes. There are different types of plans that you can invest. Annuity plans are usually preferred by many. You can also invest in other plans such as ULIPs to gain good returns for your retirement.
What is Voluntary Retirement Scheme?
Voluntary Retirement Scheme (VRS) is a type of retirement that an employee can take. In this retirement, you as an employee can choose to retire before the actual age of retirement. For example, if you are 50 years old and your actual age of retirement is 60, you can still choose to retire at the age of 50. Since you have decided to retire by yourself, it is known as retiring voluntarily.
What are the reasons behind VRS?
There are different reasons why people and companies opt for VRS:
- Employees opt for VRS due to certain family conditions or if the employee wants to start their own business.
- Companies impose VRS on employees who have completed a certain number of years of service if they are being taken over by another entity or if they are shutting down a certain section of their operations.
How does VRS work?
The rules of VRS may vary for different institutions. If you are of a certain age or have completed a specific number of years of services, you are eligible for VRS. Now the age limit or the years of service required to eligible for VRS could vary. Usually, in govt. institutions, there is an age limit criterion that you need to fulfil before you can apply for VRS. However, under special circumstances, you could be allowed VRS before the required age limit.
Companies tend to enforce VRS on employees as well. If a company is being taken over by another entity, the new owner might ask the senior employees to take VRS in order to reduce the financial burden or losses. This is not immediate, however, as they are given a certain breather period before they retire. Similarly, in public sector units (PSU), if the govt decides to privatise a PSU, the new owner might requiresenior employees to take VRS.
What are the features and benefits of VRS?
Listed below are the features of VRS:
- While the age might vary, usually the age for VRS is at either 40 years or you need to have completed at least 10 years of services for your employer.
- You are eligible for gratuity and provident fund payments.
- You can get compensation from your employer when you apply for VRS. This compensation is eligible for tax-exemption under Section 10(10C). This limit is applicable for up to Rs.5 lakhs.
Listed below are the benefits of VRS:
- It allows you to retire during your service if you have family emergencies
- It allows you to pursue your ambition of starting your own business.
- It cannot be legally forced and is up to the discretion of the employees.
- Multiple benefits are given to employees who opt for VRS.
If you are considering VRS, do keep in mind this information related to it. At the same time, you can also consider using the retirement calculator before taking VRS. The calculator gives you an idea about how much money you would require for post-retirement. This will also help you in investing in pension plans.