Pensions by ATULBHAT

8/8/2019 Pensions by ATULBHAT

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PENSION SCHEMES IN BANKING SECTOR

PENSION SCHEMES

IN BANKING SECTOR

BACHELOR OF COMMERCE

BANKING & INSURANCE

SEMESTER V

(2009-10)

GUIDE NAME: SUBMITTED BY:

Mr. KumaraSwamy. Boda Dhawal K. Gada

ROLL NO.14

Maharshi Dayanand College,

Parel Mumbai 400 012


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PENSION SCHEMES

IN BANKING SECTOR

BACHELOR OF COMMERCE

BANKING & INSURANCE

SEMESTER V

Submitted

In Partial Fulfillment of the requirements

For the Award of the Degree of

Bachelor of Commerce Banking & Insurance

By

Dhawal K. Gada

ROLL NO.14




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C E R T I F I C A T E

This is to certify that Shri/Miss of B.Com

Banking & Insurance Semester V (2009-10) has successfully

completed the project on

under the guidance of

Course Coordinator Principal

Project Guide/ Internal Examiner

External Examiner


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D E C L A R A T I O N

I, , the student of B.Com

Banking & Insurance Semester V (2009-10) hereby declare that I

have completed this project on

.

The information submitted is true & original to the best of my

knowledge.

Students Signature

Dhawal K. Gada

Roll No.14


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EXECUTIVE SUMMARY


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INDEX

SR.NO TOPIC PAGE NO.

1. INTRODUCTION TO PENSIONS

2. TYPES OF PENSIONS

TYPES OF PENSION PLANS

3.PENSION TAX IN INDIA

FINANCING OF PENSIONS

4. PENSION IN R.B.I.

PENSION IN PUBLIC SECTOR BANK

NABARD PENSIONS

5. CALCULATON OF PENSIONS

6.CURRENT CHALLENGES (Reserve mortgage)

PENSION FUND MANAGEMENT

7.PENSION STRIKE BY S.B.I.

8.CONCLUSION AND RECOMMENDATIONS

9. BIBLIOGRAPHY

MEANING


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PENSION:

A pension is a steady incomegiven to a person (usually afterretirement). Pensions are typically payments made in the form ofa guaranteed annuity to a retired or disabled employee. Someretirement plan (or superannuation) designs accumulate a cash

balance (through a variety of mechanisms) that a retiree can drawupon at retirement, rather than promising annuity payments.These are often also calledpensions.

In either case, a pension created by an employer for thebenefit of an employee is commonly referred to as anoccupational or employer pension. Labor unions, the government,or other organizations may also fund pensions.

Occupational pensions are a form of deferred compensation,

usually advantageous to employee and employer for tax reasons.Many pensions also contain an insurance aspect, since they oftenwill pay benefits to survivors or disabled beneficiaries, whileannuity income insures against the risk of longevity.

While other vehicles (certain lottery payouts, for example, oran annuity) may provide a similar stream of payments, thecommon use of the term pension is to describe the payments aperson receives upon retirement, usually under pre-determined

legal and/or contractual terms.


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TYPES OF PENSIONS

There are three key types of pension scheme: a State Pension,a personal pension and a company (occupational) pension.

I. STATE PENSION :

a) Basic State Pension:

You can claim the basic State Pension from State Pensionage: currently 65 for men and 60 for women born on or before 5

April 1950. The State Pension age for women born on or after 6

April 1950 will increase from 60 to 65 between 2010 and 2020 It

will increase for both men and women from age 65 to 68 between

2024 and 2046.

You can get a basic State Pension by building up enough

'qualifying years'. A qualifying year is a tax year in which you have

sufficient earnings upon which you have paid, are treated ashaving paid or have been credited with, National Insurance

contributions.


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You don't have to claim your State Pension as soon as you

reach State Pension age.

You can claim it later and get a higher weekly amount ortake the option of a one-off taxable lump-sum payment in addition

to the normal State Pension.

b) Additional State Pension:

You may also be entitled to an additional State Pension. For

instance, if you're in full-time employment and make Class 1

National Insurance contributions.

When you retire and claim for a basic State Pension, any

additional State Pension due will be added.

If you've been a member of a company pension scheme you may

have paid a lower rate of National Insurance contributions which

will have qualified you only for the basic State Pension. If you do

this, most or all of your second pension will come from your

company pension rather than the State Second Pension.

II. Personal pensions :

Personal pensions are available from banks, building societies and

life insurance companies, who invest your savings on your behalf.


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You can start receiving an income from a personal pension from

the age of 50 (increasing to 55 by 2010).

There's no limit on the number of personal pension schemes youcan set up, and any contributions you make won't affect your

entitlement to the basic State Pension. Non earners may be able

to pay into a personal pension.

You can save as much as you like into a personal pension. Each

year you'll be able to get tax relief on your pension contributions

up to 100 per cent of your earnings (salary and other earned

income) subject to an 'annual allowance' above which tax will be

charged. In practice this means that for each pound you put into

your pension, the government tops up your pension pot using

money it would otherwise have taken from you as tax. Read

'Pension rules from April 2006' for further details.

a) Stakeholder pensions :

Stakeholder pensions are a type of personal pension. They have

to meet certain government standards to ensure they are good

value.

Stakeholder pensions are open to everyone and may be worth

looking into if you are self-employed or if your employer doesn't

offer a company pension. They allow you to contribute as little as

20 a month. You don't have to be working to contribute to a

stakeholder pension, and you don't have to contribute every

month if you're unable to.With stakeholder pensions, you can start receiving an income

from the age of 50 (increasing to 55 by 2010). You get tax relief

on stakeholder pension contributions up to the annual allowance

described earlier.


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b)Group personal pension through your employer :

Some employers offer access to a personal pension scheme.

They may also have negotiated lower administration costs with

pension providers and make contributions to your pension

themselves.

Your employer will usually select a pension provider (for

example a bank or life insurance company) and choose a pension

scheme which they think will be suitable for their employees. Such

an arrangement is called a group personal pension plan (GPPP).

A pension taken out through a GPPP is a personal pension and

should not be confused with an occupational pension scheme. You

get tax relief on your contributions, as described earlier.

If you decide to leave your employer you may still be able to

make payments into your pension, but you may pay higher

administration costs.

III. Company (occupational) pensions :

Company (occupational) pensions are set up by employers fortheir employees.

In most cases, your employer will make contributions to the

scheme on your behalf and require that you make regular

payments from your salary.


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A company pension may also offer a death benefit, which is

paid to your partner if you die before them. Your employer may

also provide you with a pension before the normal retirement age

of the scheme if you need to retire early due to ill-health.

However, if you leave your employer you are unlikely to be able

to continue making payments into the pension scheme.

You get tax relief on your contributions to company pensions

up to an overall annual allowance, as described earlier. Some

schemes may offer you the opportunity to carry on working whiledrawing your company pension.

IV. Pensions for the self-employed :

If you're self-employed you make class 2 National Insurance

contributions. These will entitle you to the basic State Pension, but

not the additional State Pension.

If you want to receive more than the basic State Pension when

you retire, you might want to consider starting a personal or

stakeholder pension scheme. You'll then be able to make regular

payments to build up savings for your retirement

Types of Pension Plans


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Pension plans can vary greatly in terms of their structure andthe benefits they provide. The two most common types of pensionplans are the defined benefit plan and the defined contribution (or

money purchase) plan. Some employers offer a combination ofthe two types of plans - known as "hybrid" or "combination" plans.

I. Defined Benefit Pension Plans

Defined benefit plans are designed to provide you with aspecified amount of pension benefit when you retire based on aformula. Generally, this formula depends on factors like years ofservice and earnings and is described in the pension plandocuments provided to members. Members of this type of planare advised annually of the amount of pension benefit they haveearned or "accrued" up to that point.

There are three types of benefit formulae commonly used todetermine a member's pension:

final or best average earnings formula:

For each year of service, the formula provides a fixed percentage

of your final earnings from employment or of an average of yourearnings over a fixed period of time. In other words your pensionadjusts in step with your wages. For example:

1.6% of your average earnings over the best 5 years of earnings xyour total years of service

career average earnings formula:

Your annual pension benefit is a fixed percentage of your annual

earnings while a member of the plan. For example:

1.2% of your annual earnings

flat benefit formula:


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Your annual pension benefit is a fixed dollar amount per year ofservice. For example:

$32 per month per year of service

A traditional pension plan that defines a benefit for an employeeupon that employee's retirement is a defined benefit plan.

Traditional defined benefit plan designs (because of their typicallyflat accrual rate and the decreasing time for interest discountingas people get closer to retirement age) tend to exhibit a J-shapedaccrual pattern of benefits, where the present value of benefitsgrows quite slowly early in an employees' career and accelerates

significantly in mid-career. Defined benefit pensions tend to beless portable than defined contribution plans even if the planallows a lump sum cash benefit at termination due to the difficultyof valuing the transfer value.

On the other hand, defined benefit plans typically pay theirbenefits as an annuity, so retirees do not bear the investment riskof low returns on contributions or of outliving their retirementincome. The open ended nature of this risk to the employer is the

reason given by many employers for switching from definedbenefit to defined contribution plans. However, it should beremembered that data over many years is available and thusthere is little risk. Further, the employer always has the option ofvarying the proportion of the pay package going to salary orbenefits to keep the cost of the pay package constant. Thisadjustment can be made at the time that the salary package isbeing negotiated.

Because of the J-shaped accrual rate, the cost of a defined benefit

plan is very low for a young workforce, but extremely high for anolder workforce. This age bias, the difficulty of portability andopen ended risk, makes defined benefit plans better suited tolarge employers with less mobile workforces, such as the publicsector.


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Defined benefit plans are also criticized as being paternalistic asthey require employers or plan trustees to make decisions aboutthe type of benefits and family structures and lifestyles of their

employees.

Albeit one that is constructed differently than a pension offered bya private employer.

The "cost" of a defined benefit plan is not easily calculated, andrequires an actuary or actuarial software. However, even with thebest of tools, the cost of a defined benefit plan will always be anestimate based on economic and financial assumptions. Theseassumptions include the average retirement age and life span ofthe employees, the returns earned by the pension plan'sinvestments and any additional taxes or levies, such as thoserequired by the Pension Benefit Guaranty Corporation in the U.S.So, for this arrangement, the benefit is known but the contributionis unknown even when calculated by a professional.

II. Defined Contribution Pension Plans

In a defined contribution or money purchase pension plan, aspecified amount of money is contributed regularly for you. Thismoney is placed in an investment account in your name. Atretirement, these contributions - plus interest - are used topurchase a pension. You will not know the amount of pension youwill receive until you retire.

Some defined contribution plans permit employees to make theirown investment choices, while others provide that the employer

or a board of trustees is responsible for all investment decisions.

Ultimately, the size of your pension depends on the amount of thecontributions made by, or on behalf of you. It will also vary due tothe return on the investment of those contributions. Annuity rates(i.e., long-term interest rates) at the time of retirement also maybe a factor.


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The traditional form of pension is the life annuity. Typically with alife annuity, your locked-in pension money is paid to a lifeinsurance company that guarantees the payment of a fixed

amount for your lifetime. Pension legislation has introduced thefollowing alternatives to the life annuity:

A Registered Retirement Income Fund (RRIF) will allow you todetermine your level of income, as well as manage yourpension capital to take advantage of continued capitalgrowth from investment earnings, and to have moreflexibility for tax and income planning purposes.

A Variable Benefit, which is similar in nature to the aboveRRIF may be offered by a defined contribution plan. Checkwith the administrator of your plan to see if this is aretirement option under your plan.

In a defined contribution plan, investment risk andinvestment rewards are assumed by eachindividual/employee/retiree and not by thesponsor/employer. In addition, participants do not typicallypurchase annuities with their savings upon retirement, andbear the risk of outliving their assets.

The "cost" of a defined contribution plan is readily calculated,but the benefit from a defined contribution plan dependsupon the account balance at the time an employee is lookingto use the assets. So, for this arrangement, the contributionis known but the benefit is unknown (until calculated).

Despite the fact that the participant in a defined contributionplan typically has control over investment decisions, the plansponsor retains a significant degree of fiduciary responsibilityover investment of plan assets, including the selection of

investment options and administrative providers.

Hybrid and cash balance plans


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Hybrid plan designs combine the features of defined benefitand defined contribution plan designs. In general, they areusually treated as defined benefit plans for tax, accounting

and regulatory purposes. As with defined benefit plans,investment risk in hybrid designs is largely borne by the plansponsor. As with defined contribution designs, plan benefitsare expressed in the terms of a notional account balance,and are usually paid as cash balances upon termination ofemployment. These features make them more portable thantraditional defined benefit plans and perhaps more attractiveto a more highly mobile workforce. A typical hybrid design isthe Cash Balance Plan, where the employee's notional

account balance grows by some defined rate of interest andannual employer contribution.

Pension tax in India

According to pension act pension is defined as a periodical

allowance or stipend granted on account of past service,

particular merits etc. The three main components of pension are:

Pension is a compensation for past service

It owes its origin to a past employer-employee or master-servant

relationship

It is paid on the basis of an earlier relationship of an agreement of


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service as opposed to an agreement for service. This relationship

terminates only on the death of the concerned employee.

Pension received from a former employer is taxable as 'Salary'.

Hence, the various deductions available from salary income,

including relief u/s 89(1) for the arrears of pension received would

be granted to pensioners who receive their pension from, a

nationalized bank, by the bank and in other cases their present

Drawing & Disbursing Offices. Similarly, deductions from the

amount of pension of standard deduction and adjustment of tax

rebate u/s 88 and 88B shall be done by the concerned bank, at

the time of deduction of tax at source from the pension, onfurnishing of relevant details by the pensioner.

Pension to officials of UNO is exempt from taxation.

Family Pension

Under family pension a regular monthly amount is paid by the

employer to a person belonging to the family of an employee in

the event of death. Pension and family pension are qualitativelydifferent. The former is paid during the lifetime of the employee

while the latter is paid after his death to surviving family

members.

However, in case of family pension, since there is no

employer-employee relationship between the payer and the

payee, therefore, it is taxed as ' Income from Other Sources' in

the hands of the nominee(s). In respect of family pension,

deduction u/s 57(iia) of Rs. 15000 or 1/3rd of the amount received

whichever is less, is available.

Senior Citizen


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Under the Income Tax Act, a senior citizen is a person who at any

time during the previous year has attained the age of 65 years or

more. There are certain benefits available to senior citizen under

the Income Tax Act:-

Tax rebate u/s 88B: Up to assessment year 1997-98, rebate on tax

payable by a senior citizen was allowable provided the income

was below a certain limit (for assessment year 1996-97, 98-99,

40% tax rebate was available to a senior citizen provided his

income was below Rs. 1.2 Lakhs).

Form assessment year 1998-99, the tax rebate is available to

all senior citizen to the extent of the entire tax payable or Rs.10000 whichever less without any ceiling on the income is. This

rebate has been further enhanced to Rs. 15,000 from A.Y. 2001-

2002 onwards.

Rebate under this section has now been increased to Rs.20,

000 forms A.Y. 2004-05 by the Finance Act 2003.

This rebate is available to all senior citizens whether they are

pensioners or self employed or traders etc.

The 1 out of 6 criteria for filing of income tax return under proviso

to Sec. 139(1) shall not be applicable in case of senior citizen.

However, if a senior citizen meets any of the four criteria, other

then ownership of immovable property of subscription to a

telephone, then return will have to be filed by him.

Other Benefits: The deduction available u/s 80D for medical

insurance premium paid is to be increased to Rs. 15,000 for senior

citizens. Secondly, the deduction available u/s 80DDB in respect

of expenditure incurred on treatment of specified diseases is tobe

increased to Rs. 60,000 for senior citizens. The above provisions

shall come into effect from assessment year 2000-2001 onwards.


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FINANCING OF PENSION

There are various ways in which a pension may be financed.

Funded status

In an unfunded defined benefit pension, no assets are set asideand the benefits are paid for by the employer or other pensionsponsor as and when they are paid. Pension arrangementsprovided by the state in most countries in the world are unfunded,with benefits paid directly from current workers' contributions andtaxes. This method of financing is known as Pay-as-you-go. It hasbeen suggested that this model bears a disturbing resemblance toa Ponzi scheme.

In a funded defined benefit arrangement, an actuary calculatesthe contributions that the plan sponsor must make to ensure thatthe pension fund will meet future payment obligations. Thismeans that in a defined benefit pension, investment risk and


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investment rewards are typically assumed by thesponsor/employer and not by the individual. If a plan is not well-funded, the plan sponsor may not have the financial resources to

continue funding the plan. In the United States, private employersmust pay an insurance-type premium to the Pension BenefitGuaranty Corporation, a government agency whose role is toencourage the continuation and maintenance of voluntary privatepension plans and provide timely and uninterrupted payment ofpension benefits.

Defined contribution pensions, by definition, are funded, as the"guarantee" made to employees is that specified (defined)

contributions will be made during an individual's working life.

Pensions in RBI

From India pensions:

The pension scheme in RBI was introduced before it was

introduced in the public sector banks. The scheme came into forceon 1st November, 1990. It is primarily a defined benefit schemethat pays pension at a replacement rate of 50%.

Applicability:


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The pension scheme in RBI covers three classes of employees:

Employees who were recruited or who joined the bank on or

after 1.11.1990. Employees who were on the rolls on 1.11.1990 and who had

opted for the pension scheme. Employees who retired from the bank after 1.1.1986.

The employees who retired between 1.1.1986 and 1.11.1990 wereallowed to join the scheme provided they returned the Bank'scontribution to provident fund and interest accrued on it alongwith a simple interest at the rate of 6%. The interest was payablefor the period between the date of retirement and the date ofrepayment. These employees started receiving pension from1.11.1990. The employees were allowed to commute theirpension after due medical examination.

Operational framework

Benefits:

There are several classes of pensions and the pension anemployee receives depends on the manner in which he retires.

The full rate of pension for the retirees of the Reserve Bank is fiftypercent of the average emoluments subject to a minimum ofRs.375/- per month in the case of a full time employee. In case ofa part time employee the minimum pension is a proportionate

amount which depends on the rate of wages applicable. Anemployee who has put in 33 years of qualifying service is eligibleto receive full pension. In case of members with less than 33years of qualifying service, the pension is a proportionatedepending on qualifying service.


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The scheme also provides for a family pension after the death ofthe member. The ordinary rate of family pension is calculated as :

Family pension

Pay Range Rate of Family Pension per month

Up to Rs.1500 30% of pay, subject to a minimum of Rs.375

Rs.1500 to

Rs.3000 20% of pay, subject to a minimum of Rs.450

Above Rs.300015% of pay, subject to a minimum of Rs. 600 p.m.

and maximum of Rs.1250

PENSIONS IN Public sector banks

History:
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For a long time banks in India were covered only by theContributory Provident Fund and Gratuity. A defined benefitpension scheme existed only in the State Bank of India. The fact

that some employees received pension benefits (for exampleemployees in the State Bank of India) and the rest of theemployees could never avail this facility became a major topic ofconcern. There ensued a series of negotiations and settlementsbetween the Indian Banks Association and the Workmens' Union(which comprised mainly of All India Bank Employees Association),which resulted in the introduction of a pension scheme for allbanks.

Eligibility:Pension scheme in public sector banks cover both full time

employees and part time employees. (Part time employees arethose who work for thirteen hours or more per week and haveserved for at least ten years). The following classes of employeesare covered.

Employees joining the bank on or after 1st November, 1993. Employees serving in the banks as on 31st October, 1993.

These employees had the option of joining the scheme. Incase an employee decided to do so, he had to transfer thebank's total contributions to the provident fund and theinterest accrued thereon, to the pension fund.

Employees retiring between 1st January, 1986 and 1stNovember, 1993. These employees could join the pensionscheme by paying back the bank's total contributions to theprovident fund and the interest accrued thereon, along witha simple interest of 6% per annum.

Operational Framework

Contributions:

Old age income security in banks consists of a contributoryprovident fund and a defined benefit pension scheme. In case ofthe contributory provident fund, the bank contributes the same


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amount as the employee does towards the provident fund. This is10% of the employee's pay. Pay includes the basic pay includingstagnation increments, if any and all allowances counted for the

purpose of making contributions to the provident fund and for thedearness allowance.

If an employee opted for the pension scheme, the tenpercent contribution of the bank which was earlier made to hisprovident fund was transferred to the pension fund. This appliedto all employees working in the banks in 1993 and wascompulsory for all new employees recruited after 1993.

Benefits:

There are two kinds of pension benefits- pension available tothe employees and family pension for family members after thedeath of the employee. An employee needs to fulfill certainconditions to be eligible to receive pension. The formula forcalculating pension is (half of the average emoluments X numberof years of qualifying service)/33. The minimum amount ofpension received is Rs.375 per month in case of a member whoretired before 1st November, 1993.and Rs.720 per month for

those retiring after 1st November, 1993.

A dearness relief is granted over and above the basicpension to allow for inflation. Dearness relief is granted onmember's pension or family pension or invalid pension or oncompassionate allowance. It is allowed on full basic pension evenafter commutation (withdrawal of one third of money from thebasic pension).

Commutation of pension:

The scheme allows a member to take a fraction of monthlypension as a lump-sum after retirement. This is known ascommutation of pension. The maximum amount a member cantake as a lump sum is 1/3rd of the basic pension admissible tohim. A pensioner, who has commuted a part of pension, shallreceive only the balance of the pension on monthly basis.


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However the full value of the pension is restored after a period of15 years from the date of commutation. The commutation isadmissible in respect of superannuation pension, voluntary

retirement pension, premature retirement pension, invalidpension and compassionate allowance. If a pensioner dies afterthe commutation has become payable, without receiving thecommuted value, it will be paid to his/her nominees.

The maximum amount that can be taken as a lump sum isequal to basic pension X 1/3 X 12 X factor as per commutation

Table. The factor in the commutation table that is applicabledepends on the age of the member on the next birthday.

Commutation after one year from the date of retirement canonly be sought after medical examination. If the application forcommutation is made within one year after the date of retirement,no medical examination is required in cases of superannuationpension, premature retirement pension and pension on voluntaryretirement. If application is made after one year of retirement,then it becomes essential to undergo medical examination.However in case of those who are granted invalid pension orcompassionate allowance, a medical examination is essential

even if one applies for commutation within one year of retirement.

Forfeiture of pension:

The cases of dismissal, termination or resignation by anemployee from the service would disentitle him from any pensionbenefit or payment. There could be exception only under thecondition where the Service regulations or Service Rules orSettlements entitle such an employee to receive superannuationbenefits.

An employee who is deemed to have retired voluntarily fromthe bank's service under the provisions for voluntary ceasation ofemployment contained in Bipartite Settlement dated 10th April,1989, shall entail forfeiture of past service and would not qualifyfor pension.


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Tax benefits:

The pension that an employee receives after his retirement

is subject to tax. However, the commuted amount up to one thirdof the pension is tax free.

Investment:

Every bank has provision for the payment of pension orfamily pension to the employees or his family. In order to havesuch a provision, each bank constitutes its own fund, known asthe Bank (Employees) Pension Fund. To ensure propermanagement, this fund is kept under a trust. This Trust has to be

constituted within one hundred and twenty days from the notifieddate. It is important to have sufficient amount in the fund so thatthe trustees managing the Fund are able to meet the duepayments and interests of the pensioners and beneficiaries. TheBank here plays a vital role in contributing to the Fund. Each Fund(Trust) has books of accounts containing details of all the financialtransactions relating to the Fund. The Trust also prepares thefinancial statements which specify the assets and liabilities. Anaccount of the financial statement is sent to the Bank on a

periodic basis. For investigating into the financial condition of theFund an actuarial valuation of the fund is carried out everyfinancial year. All money contributed to the Fund has to bedeposited in a Post Office Savings Bank Account in India or in acurrent account with any bank. The contributions are invested asper the notified investment pattern. These investment guidelinesare meant for and followed by not only the pension scheme butalso by the provident fund scheme. The investment pattern asenvisaged in the above categories is achieved by the end of afinancial year (that is, 31st March of each year) 30.

Administration:

Every Fund is constituted in the form of a Trust. Every Bankis vested with the responsibility of appointing the Trustees whoshall comply with the directions of the Bank for the proper


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administration and functioning of the Fund. One of the Trustees isthe Chairman of the Board of Trustees and in case the Chairmanof the Trust is absent then the acting Chairman - another Trustee

acting as an alternate Chairman takes the responsibility for Fundmanagement. The pension fund in State Bank of India isadministered by the Pension, Provident fund and GratuityDepartment. The cost of the management of pension fund isborne by the bank itself and not by the trustees.

Grievances:

The pension is paid to the retiree on a monthly basis. Theremay crop up a situation where the pension is not received in time.In such a case, the retiree can go to the senior authorities of thebank to complain about such a delay. In the State Bank Of India,the retiree(s) can go to the Trustees or Pension, Provident fundand Gratuity Department.

Transfer of job:

There might arise a situation where an employee resignsfrom a bank before rendering or completing minimum number ofyears of service and joins another bank/service. In such a case,the employee would not be entitled to receive any pension fromthe former bank as this leads to the forfeiture of this service andhence pension. On the contrary, if he leaves the bank aftercompleting the minimum years of service required for receivingpension and joins another bank or service, he would be entitled toreceive the pension benefits from the former bank. In situationwhere an employee joins any other bank or service then, based on

the number of years of service. Rendered in the bank / service hejoins, he would be entitled to the pension. The services renderedin the past or previous bank is not taken into account unless thereis a case of merger of the banks.


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NABARD pensions

From India pensions:

The pension scheme in National Bank for Agriculture andRural Development was introduced in 1993. The scheme cameinto force on 1st November, 1993 under Section 60 (1 (j)) of theNational Bank for Agriculture and Rural Development Act, 1981.

Eligibility:

Three classes of employees are eligible to receive pensionunder the scheme;

Employees joining the bank on or after 1st November, 1993 Employees serving in banks as on 31st October, 1993. Employees who were in service as on 1st January 1986 and

had retired before 1st November, 1993.These employees


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could opt to join the pension scheme by paying back thebank's contribution to PF along with the interest receivedfrom the bank, together with a simple interest at the rate of

6% per annum. The interest has to be paid for the periodbetween the date of withdrawal of the provident fundamount and the date of refund.

Operational framework

Benefits:

Monthly pension:

A member has to render a minimum of ten years of service inorder to qualify for monthly pension. The qualifying service of anemployee commences the day he takes the charge of his post ona permanent basis. Qualifying service of an employee also includethe following;

The service on training or probation immediately prior to theappointment in the bank.

Broken period of service provided it is less than six months. The period on leave for which salary is payable. The period of suspension of an employee is counted as

qualifying service provided the suspension is provedunjustified.

The full rate of pension is payable to an employee who rendersthirty three years of qualifying service. If the number of years ofservice is less than thirty three years, then pension payable iscalculated in proportion to the number of years of qualifyingservice.

The rate of basic pension is fifty percent of monthly emolumentsfor a full time employee. For a part time employee the rate ofbasic pension is in a certain proportion to the rate of wages.

Family Pension:


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n the case of death of the employee, the survivor of the deceasedis granted a family pension. Family pension is granted to thedependents or survivors of an employee if he dies after

completion of one year of continuous service. If the employee diesbefore completion of one year of continuous service, familypension benefits are paid to the survivors provided that thedeceased employee was declared fit by the bank immediatelyprior to his appointment. Family pension is also payable to thedependents of an employee who had retired and was receivingpension or a compassionate allowance on the date of death.

The family pension is not payable to more than one member of

the family at the same time. In case the deceased employee issurvived by a widow / widower, the family pension would begranted to her / him failing which it is granted to the eligible child.

The eligible child would receive the family pension till the time heor she attains the age of twenty five years or start earning or getmarried (in case of daughter) whichever is earlier. If the child is aminor then the family pension would be received by his or herlegal guardian till the time he or she has attained majority. If thechild is handicapped he receives the family pension throughout

his life provided that he is incapable of earning his livelihood.Family pension is granted on the basis of age of the children.

Commutation:

An employee can commute up to two-fifth of his pension.

Commuted portion of the pension is restored after a period of

fifteen years from the date of commutation. If the commutation is

sought after one year of the retirement, it will be granted only

after medical examination by the National Bank's Medical Officer.

Forfeiture of pension:

The cases of dismissal, termination or resignation by an employeefrom the service would disentitle him from the past service andhence from any pension benefit or payment


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METHOD OF CALCULATION OF PENSION

Rates of PensionPension is calculated @ 50% of average emoluments drawn by the

retiring Government servants during 10 months prior to his

retirement subject to qualifying service. Those who have got less

than 33 years qualifying service will get pension on pro-rata basis.

The minimum pension per month in all cases will be Rs. 1275/-

and maximum pension shall be 50% of the highest salary paid to

a Civil Servant which at present is Rs. 30,000/- i.e. 15,000/-.

Family pension is calculated at 30% of the pay drawn at the time

of retirement if the minimum of Rs. 1275/- and maximum of Rs.

9000/-.

Dearness Relief on Pension/Family Pension

Pensioners/Family Pensioners is eligible to get Dearness Relief at

the same rate like serving Government employees (Rule 55A).

Procedure for Sanction and Disbursement of Pension

Procedure for determination and authorization of the amounts of

pension and gratuity are governed by Rule 56 to 76 of the CCS

(Pension) Rules, 1972. Wherever delays are anticipated,

provisional pension is required to be sanctioned under Rule 64

and 69 of the CCS (Pension) Rules. Theprocess of preparation of


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pension papers start at least 24 to 30 months prior to the due

date of retirement of the Government servant by the Head of

Department/Head of Office/Accounts Officer. The retiring

Government servant is to be provided with theapplication Forms

for processing pension papers 2 years prior to the date of his

superannuation. Eight months prior to the retirement date, the

retiring official is required to furnish certain information (for

example joint photograph with spouse, family details, name of

bank through which pension is to be drawn etc.) to the Head of

Office in the prescribed Form. The Head of Office is required to

send complete pension papers to the Account Officer not later

than 6 months before the date of retirement.

The Head of Office/Accounts Officer is expected to complete the

processing of pensionpapers well in time so that the pensioner is

able to draw his pension immediately after his retirement. Pension

can be drawn either through the Branch of a Public Sector Bank or

through Treasury. The Accounts Officer after going through all the

procedures will issue the Pension Payment Order to the Central

Pension Accounting Office who will issue the Special SealAuthority to the concerned Bank/Treasury. In fact the PAO is

required to dispatch the PPO to the CPAO not later than one

month in advance of the retirement date. In case the pensioner

want to change the bank/treasury/place of drawl of pension, he

will have to apply to the concerned Accounts Officer/PAO for

making necessary correction in the PPO

Department of Personnel and TrainingDepartment of Administrative Reforms & Public Grievances.

10 Common Causes of Errors in Pension Calculation


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1. All relevant compensation, such as commissions, overtime,and bonuses, (if these were to be included in your plan) wasnot included in calculating your benefits.

2. The calculation was not based on all your years of servicewith the company, or all work within different divisions.

3. The plan administrator used an incorrect benefit formula,such as wrong interest rate.

4. Plan used wrong social security data in calculating yourbenefits.

5. Basic information such as birthdate, and, or social securitynumber was incorrect.

6. Your company merged with another company, or went out of

business, and there is confusion over which pensionbenefits you qualify for.7. Assets in your account were improperly valued.8. Your employer failed to make required contributions on your

behalf.9. Basic mistakes were made in the mathematical calculations.10. You failed to update your personnel office with changes

(marriage, divorce, death of spouse) that may affect yourbenefits.

Consumer Tips for Safeguarding Your Pension

Know your pension plan. Obtain and review your Summary PlanDescription (SPD), the rulebook for your pension.


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Review your individual benefit statement and individual accountinformation. Know what your accrued and vested benefits are.

Maintain a pension file. Keep records of where you've worked,dates you've worked there, your salary and any plan documents orbenefit statements you've received.

Notify your plan administrator of any changes that may affect yourbenefit payments (i.e., marriage, divorce, death of a spouse).

Know the person in your company who has information about yourpension plan and can give you plan documents.

Know how the merger or acquisition of your company will affectyour pension benefit. Know your pension rights. Requestinformation on your pension rights and how to protect yourpension. Call 1.866.444.3272 for publications.

Contact the Department of Labor's Employee Benefits SecurityAdministration if you have any additional questions about yourrights under the law.

CURRENT CHALLENGES

A growing challenge for many nations is population aging. As birthrates drop and life expectancy increases an ever-larger portion ofthe population is elderly. This leaves fewer workers for eachretired person. In almost all developed countries this means thatgovernment and public sector pensions could collapse their


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economies unless pension systems are reformed or taxes areincreased. One method of reforming the pension system is toincrease the retirement age. Two exceptions are Australia and

Canada, where the pension system is forecast to be solvent forthe foreseeable future. In Canada, for instance, the annualpayments were increased by some 70% in 1998 to achieve this.

These two nations also have an advantage from their relativeopenness to immigration. However, their populations are notgrowing as fast as the U.S., which supplements a high immigrationrate with one of the highest birthrates among Western countries.

Thus, the population in the U.S. is not aging to the extent as thosein Europe, Australia, or Canada.

Also the condition of the historical data and its development into asecure database can be an expensive and labor intensiveendeavor. Currently, the trend to develop on line electroniccalculators that replace traditionally complex spreadsheetcalculations performed by Actuaries and Analysts is the industrynorm in records management.

Another growing challenge is the recent trend of businesses in theUnited States purposely under-funding their pension schemes in

order to push the costs onto the federal government. Bradley Belt,former executive director of the PBGC (the Pension BenefitGuaranty Corporation, the federal agency that insures private-sector defined-benefit pension plans in the event of bankruptcy),testified before a congressional hearing in October 2004, I amparticularly concerned with the temptation, and indeed, growingtendency, to use the pension insurance fund as a means to obtainan interest-free and risk-free loan to enable companies torestructure. Unfortunately, the current calculation appears to be

that shifting pension liabilities onto other premium payers orpotentially taxpayers is the path of least resistance rather than alast resort.


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LATEST IN NEWS

REVERSE MORTGAGE

Old age comes with its own share of problems. As a person growsolder, and his regular source of income dries up, his dependencyon others can increase significantly. With health care expenses on

the rise and little social security, living the golden yearsrespectfully can be quite a challenge for senior citizens. In such ascenario, a regular income stream that can help them meet theirfinancial needs and maintain their current living standardsbecomes important.

One typical feature with most senior citizens is that theirresidential property accounts for a significant portion of their totalasset pie. And, given its illiquid nature, property fails to aid seniorcitizens on the liquidity front

AIn the Union Budget 2007-08, a proposal to introduce 'ReverseMortgages' was put forth. To understand the concept of reversemortgage, first let us understand what a regular mortgage is. In aregular mortgage, a borrower mortgages his new/existing housewith the lender in return for the loan amount (which in turn he


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uses to finance the property); the same is charged at a particularinterest rate and runs over a predetermined tenure. The borrowerthen has to repay the loan amount in the form of EMIs (equated

monthly installments), which comprise of both principal andinterest amounts. The property is utilised as a security to coverthe risk of default on the borrower's part.

In the reverse mortgage, senior citizens (borrowers), who own ahouse property, but do not have regular income, can mortgagethe same with the lender (a scheduled bank or a housing financecompany-HFC). In return, the lender makes periodic payment tothe borrowers during their lifetime. In spite of mortgaging the

house property, the borrower can continue to stay in it during hisentire life span and continue to receive regular flows of incomefrom the lender as well. Also, since the borrower doesn't have toservice the loan, he need not bother about repaying the 'borrowedamount' to the lender.

The concept of reverse mortgage, although new in India, is verypopular in countries like the United States. Recently, NationalHousing Bank (NHB), a subsidiary of the Reserve Bank of India(RBI), released draft norms of reverse mortgage (the final

guidelines are awaited). Following are some of the key features ofthe scheme from the draft norms.

1. As per the norms, a house owner who has crossed 60 years ofage is eligible to seek a loan of up to 60% of the value ofresidential property by mortgaging the same (for the maximumperiod of 15 years) with a bank/HFC, while retaining the right tostay in the property. The borrower i.e. house owner is not requiredto pay back the loan amount.

2. In terms of receiving the loan amount, the borrower can opt formonthly, quarterly, annual or lump sum payments or payments atany other point in time as per his discretion. Also, a revaluation of


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the property has to be under taken by the bank/HFC once every 5years. Consequent to the revaluation, necessary changes will bemade to the loan amount. However, the bank/HFC will have the

discretion to decide the mode of payment of loan and todetermine the tenure of the loan, depending on factors like thestate and market value of the property and age of the borrower,among others.

3. The borrower can use the loan amount for various purposes likerenovation and extension of the residential property,maintenance/insurance of the residential property and family'smedical or emergency expenditure, among others. However, the

loan amount cannot be used for any speculative or tradingpurposes.

4. The interest rate on the reverse mortgage will be determinedby the bank/HFC based on the risk perception and loan pricingpolicy, among others. Fixed and floating rate of interest may beoffered, subject to a transparent disclosure of the terms andconditions to the borrower.

5. The lender will recover the loan along with the accumulated

interest by selling the house after the death of the borrower orearlier, if the borrower leaves the mortgaged residential propertypermanently. Any excess amount will be remitted back to theborrower or his heirs. However, before resorting to sale of thehouse, preference will be given to the owner or his heirs to repayor prepay the loan amount, along with the interest, and to get themortgaged property released.

6. The amount received through reverse mortgage is consideredas loan and not income; hence the same will not attract any taxliability.

BANGALORE: The Union Bank of India on Friday launched its"Union Reverse Mortgage Scheme", a loan product designedexclusively for the benefit of senior citizens.


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The bank is the fourth in the country to launch the schemethrough which the loan seeker need not worry about re-payment

and be assured of monthly income; the Bank's Bangalore ZoneField General Manager L N V Rao told a press meets here.

The loan will be available to homeowners who are 60 years of ageor more and can be availed jointly with the spouse, provided he orshe is more than 55 years old, he said.

Unlike other loan products, there are no income criteria to be met

for availing loan. On the demise of the last surviving owner, the

legal heirs have the right to repay. If they do not wish to do so,the bank will sell the property, set off the loan outstanding

the surplus, if any, will be given to legal heirs. The minimum loan

amount that can be availed is Rs one lakh and maximum Rs 50

lakh, Rao said. Seventy per cent of the assessed value of the

building would be the loan amount.

The maximum tenor of a loan under this scheme is 15 years. Theloan carries a fixed interest of 10 per cent per annum.

Typically, for a loan of Rs 10 lakh, the monthly pay off to the

onwer on ten year loan will be Rs 4880 and on a 15 year loan, it

will be Rs 2410, Rao said.

The property is revalued every five years and adjustments will bemade to the monthly payments accordingly, he said.

Rao said the borrower has to comply with certain conditions which

include that he bears the cost of property insured against fire,

earthquake and other calamities.


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If the borrower ceases to stay in the house which has been

mortgaged, the loan will be cancelled.

Indian bank reverse mortgage scheme

Parameter Terms

Eligibility

Senior Citizens above 60 years,

including retired staff of our Bank.

Married couples will be eligible as

joint borrowers for financial

assistance provided one of them is

above 60 years of age

They should be owner of self

acquired residential property with

absolute, clear title / conveyance

and self-occupied and it should bePrincipal residential house / flat ,

located in India.

The property should be free

from encumbrance and is saleable

The residual life of the property

should be more than 20 years

Eligible Loanamount

The maximum amount of loanalong with interest is restricted to

Rs. 100 lakh i.e. maximum loan

amount would be Rs.40 lakh.

The amount of loan will depend


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on market value of the residential

property as assessed by the Bank.

Purpose of

Loan

Meeting any genuine need

(Reverse Mortage Loan(RML) for

speculative, trading purposes shall not

be permitted)Monthly

annuity

payable by the

Bank

@ Rs. 555/- per Rs. 1 lakh loan

Interest Rate

BPLR + TP minus 3.00 %

(presently 10% fixed ), with reset

clause

The interest rate will be reset once

in five years

Security

Mortgage of residential property

in favour of Bank

Bank reserves the right to seekadditional collaterals

Note : Commercial property will not

be eligible for RML( Reverse

Mortage Loan ).

Period of Loan

15 years, with a provision to roll

over, in case of need, after

revaluation

Fresh terms, as at the time of

rollover, will be applicable.Repayment

terms

The loan shall become due and

payable

1. at the end of the stipulated


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repayment period or when the last

surviving borrower dies, which ever

is earlier,

2. When the borrower sells the

home or permanently moves out of

the home (Permanent move

means neither the borrower nor any

other co-borrower has lived in the

house for one continuous year)

Settlement of loan along with

accumulated interest to be met bythe proceeds received out of sale of

residential property

The borrower / his / her / their

legal heirs will have option to settle

the loan along with accumulated

interest, without sale of property.

(If required, nomination of legalheirs can be insisted upfront).

Insurance of

property

The Assets-Flat/House property

should be, insured against fire,

earthquake and other calamities by

the borrower

PENSION FUND MANAGEMENT

The Reserve bank of India on Thursday allowed banks toundertake pension fund management business through theirsubsidiaries. The subsidiaries would, however, be required tomaintain arms-length relationship with the bank since the


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regulator has debarred them from undertaking the pension fundmanagement business departmentally.

To provide adequate safeguards against associated risks andensure that only strong and credible banks enter into the businessof pension fund management, the regulator has allowed onlyprofitable banks, with have net worth of not less than Rs 500crore, capital adequacy ratio of more than 11% and return onassets of not less than 0.6% to undertake the business.

Besides this, the banks venturing into pension fund managementneed to ensure that they have net non-performing assets of less

than 3%.

The high benchmark set for the banks is the result of the long-term nature of the business with the life of a pension productbeing at least 25 to 30 years.

The Reserve Bank has permitted banks to set up subsidiariesthrough joint venture with foreign partners. But, the foreigninvestment in subsidiary companies managing pension fund hasbeen capped at 26%. Interestingly, while calculating the FDI in thesubsidiary company, the foreign holding in the promoting bankwill not be calculated on pro-rata basis.

RBI in a notification on Thursday evening said the bank interestedin floating a subsidiary should obtain prior permission of the

central bank. The investment in the subsidiary should be limitedto 10% of its own paid-up capital and reserves.

At the same time, the banks total investment by way ofequity contributions in its existing subsidiaries, the proposedpension funds subsidiary and those formed in future together withportfolio investments in other financial services companies should


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not exceed 20% of its paid-up capital and reserves. The bankshould evolve a suitable system to monitor operations of thesubsidiary.

State Bank, PNB, LIC interested in

Pension fund management:

STATE Bank of India, Punjab National Bank, Life InsuranceCorporation, along with a number of private entities, areinterested in foraying into pension fund management, accordingto Mr. D. Swarup, Chairman, Pension Fund Regulatory andDevelopment Authority (PFRDA).

He also indicated that about Rs 3,500 crore has beenaccumulated (since last year) under the new scheme for Central

government employees - a corpus that now needs to be allocatedmore rationally.

This corpus, in fact, is set to increase progressively with eachpassing year. A few State governments have agreed to join themovement. Incidentally, a great number of people working for thegovernment regularly came under the ambit of the scheme even


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as large-scale retirement and departure took place, he added. Hewas addressing a meeting organised by the Bengal Chamber ofCommerce & Industry recently.

It is learnt that pension fund management outfits may beallowed to have a minimum capital base of less than Rs 100 crore,although no decision on the matter has been reached. Insurancecompanies are required to have a minimum base of Rs 100 crorein line with the current norms.

The market, it is pointed out, is at this stage keen to knowmore on a host of critical issues, including the central recordkeeping system and the kind of fund.

Managers that will be allowed to operate in the country.

A number of changes will be brought about under the newdispensation, Mr. Swarup said. Already, a large body of opinionhas formed with regard to the continuity of PPF. The latter ismarked by a relatively high rate of interest, a feature that hasbeen favored by the common people.

Advantages of a pension plan

To maintain the same standard of living after retirement:

Whether a plan is a defined contribution plan, a defined benefitplan or a simplified pension plan (SIPP), it will nicely complementpublic plans. The main objective of supplemental pension plans isto provide retirement income over and above that paid by thepublic plans.


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Concrete advantages for employees and employers:

A supplemental pension plan is part of the fringe benefits that anemployer can offer his employees. Besides the financial security itoffers after retirement, it is a form of deferred pay appreciated byemployees. For the employer, having a plan can make it easier toattract and keep competent employees.

For retirement and much more...

Contributions made to a pension plan are tax deductible.

Employer contributions do not result in any payroll taxes

because they are not included in the calculation to determine

contributions to other programs, such as employment

insurance, the Fonds des services de sant, etc.

Investment incomes generated by the pension fund in whichcontributions accumulate are tax exempt.

The employer contributions are vested to the plan member

as soon as his or her membership begins.

In the event of a member's death, his or her spouse receives

a pension or other benefit. If there is no surviving spouse, a

benefit can be paid to a designated beneficiary or to the

member's heirs. The benefits accumulated in a plan cannot be seized, except

in a few cases, such as a seizure to alimony or child support or

for the purpose of partition of family patrimony.

The pension fund does not belong to the employer; it cannot

be seized if the business goes bankrupt.


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CASE STUDY

Successful Strike by SBI Staff

OVER two lakh employees of the State Bank of India commenced

an indefinite strike on April 3, 2006. The nation-wide strike was onthe demand for a comprehensive review of the pension schemethat had been in vogue for several decades. The strike was total inall the 9,000 branches of SBI, with the officers and employeesunder the banner of the All-India State Bank Officers' Federation(AISBOF) and All India State Bank of India Staff Federation(AISBISF) staying away from work.

With the government forced to come down and conceding the

demands of the staff, the seven-day strike was withdrawn by theemployees. The CITU general secretary Chitrabrata Majumdar in acongratulatory letter to the employees on April 11 hailed it as aglorious victory in the backdrop of the adamant stand adopted bythe finance ministry. "It is the rocklike determination andsolidarity manifested by the lakhs of your members that forcedthat ministry of finance to come down from its ivory towers and to


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accede to the genuine demands of the workforce in the larger unitof public sector banks in the country", he stated.

While the bank offices remained shut during the strike, thestrikers have been holding daily demonstrations in front of them,

joined by large numbers of pensioners and family pensioners.

The United Forum of Bank Unions, an industry level umbrellaorganisation, comprising nine federations of bank officers andemployees had extended support to the strike in SBI.

PENSION ISSUE :

In the entire banking industry, State Bank of India was the firstinstitution to have a pension scheme for its staff in place, sinceseveral decades. Subsequently, as a result of an agreementbetween the Indian Banks Association and the bank unions, apension scheme was introduced covering the employees andofficers of the other banks as well. The Reserve Bank of India alsointroduced a pension scheme for its staff. But, the pensionscheme of the State Bank of India had remained almostunchanged, even while these schemes were introduced in otherbanks. Moreover, the family pension had not been revised in thelast 20 years.

A major discrepancy in the pension scheme for SBI, whencompared with the other public sector banks, is that for SBI staffthere is a ceiling on pension income, fixed at Rs 5,600 per monthfor calculation of monthly pension payable, whereas for the rest ofthe banking industry it is 50 per cent of the last pay received withno ceiling. Hence, the staff of SBI had been demanding, inter-alia,

the following: " Pension at 50 per cent of the last drawn salary;commutation on par with industry; index-linked dearnessallowance on pension on par with industry; and upgradation ofbasic pension of all past retirees taking into account the currentmerger of index at 2,288 points " . The present strike is, in themain, on these demands.


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IMPACT OF STRIKE :

The strike had hit the banking operations in the country with the

cheque-clearing, forex and call market operations seriouslyaffected. SBI handles 25-30 million transactions a day and as suchthe strike had a paralysing impact throughout the country. TheReserve Bank of India (RBI) took over the clearing operations inmost of the major centres operated by the SBI, but transactionsinvolving the SBI could not be processed, thus the clearingoperations remained affected for most part.

The SBI also has to its credit the largest number of Automatic

Teller Machines (ATMs) throughout the country. Though these SBIATMs were operational on the day of commencement of the strike,when the machines ran out of cash the ATMs were also affected.

Ironically, the strike prolonged, despite both the parties to thestrike the management and the staff declaring that they wereprepared for a dialogue to resolve the issues involved. A K Purwar,chairman, SBI, said, "We are trying to sort out the issue. We aretalking to all concerned (the unions, the government etc) andhope to find a solution soon." From the staff side, T N Goel, vicepresident, All-India SBI Officers Federation stated: "We are willingto talk and negotiate on the issue if the government calls us."

THE ROADBLOCK :

The representatives of the striking staff had a discussion with theunion labour minister on April 2, along with a representative of thefinance ministry. It was reported that the unions were asked toput the issue on hold until the assembly elections, under way in

five states, are over. But the unions refused to budge without afirm commitment on meeting the demands.

The major roadblock to a settlement of the strike was the standtaken by the finance ministry, with senior officials indicating thatthe government was not in favour of acceding to the demands as


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it could result in similar demands being placed by other state-owned banks.

Another round of conciliation meeting with the chief labourcommissioner was held on April 5, but there was no outcome. Thefinance ministry had a grand design. It is keen to push the NewPension System (NPS), which has been imposed on thegovernment employees recruited after January 2004, to the arenaof financial sector as well. In fact, the pension sector reforms actively pursued by the finance ministry aims at liquidating thevery concept of defined benefit pensions. This is one core aspectof the problem.

The CITU had extended support to the strike by the employeesand officers of the State Bank of India. It held the finance ministry,which had taken an unrelenting stance, as responsible for thepresent impasse and demanded the intervention of the primeminister.

FINAL AGREEMENT :

The strike by employees of SBI continued for a whole week forwisdom to dawn upon the finance minister to extend an invitationlate on the evening of April 8 to hold further negotiations. Afterhectic day-long negotiations on Sunday (April 9) between themanagement and the unions in the presence of top financeministry officials, a new formula on the pension issue was agreedupon.

Under this, the fresh `cut-off' of basic pay for determining pensionhas been increased to Rs 21,040 from Rs 8,500. All employees

earning a basic pay of Rs 21,040 would get pension at 50 per centof that amount, while those earning above that level would get 40per cent for the incremental amount above Rs 21,040 "subject toa minimum of 50 per cent of Rs 21,040".

With this successful resolution of the pension issue, the seven-daylong strike was called off. Announcing the settlement, the finance


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minister commented, "The financial implications are within thefinancial capacity of SBI." Here comes the moot question: If that isso, who is responsible for the inconvenience caused to the

banking public and who inflicted the enormous loss on the leadingpublic sector bank? The answer is simple: 'It is the ego of thefinance ministry that held the bank, its employees and the publicto ransom for a week.' Thankfully, the agony has ended!

BRACING FOR ANOTHER STAND OFF? :

The finance minister also hoped that the revised package was notexpected to result in similar competitive demand from other

public sector banks, as other nationalised banks had their ownformula. But, he would do well to remember that following the lastindustry wage settlement of 2005, the bank unions and the IndianBanks Association had been in dialogue over the long pendingdemand of the employees of other banks for an opportunity toexercise the option for the pension scheme.

This is yet another dimension to the pension issue in the bankingsector, which could plunge the entire industry into a crisis. Thefinance ministry had been sitting tight-lipped over a demand ofthe bank unions for one more option for pension and upgradationof pension in the other PSU banks. When the pension scheme forthe staff of the other PSU banks was introduced in the 90's, itprovided for an option of choosing either pension foregoingemployer's contribution to provident fund or availing employer'scontribution to provident fund, foregoing pension. The employees,who at that time did not opt for pension, constitute a significantnumber and want to opt for the same in the changed scenario offalling interest rate regime. This demand is strengthened by the

fact that the RBI, which introduced a pension scheme later, hadprovided such option to its staff at the time of subsequent wagesettlements.

Is the finance ministry bracing for another stand off on this? Or

will it respond in time to the wake up call?


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CONCLUSION AND

RECOMMENDATION


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Recommendation

1. Pension should not be stopped.2. Pension should be given by private banks as well

3. The amount of pensions given should be increased.

4. The pension amounts are not revised on regular basis. They

should be revised regularly.


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BIBLIOGRAPHY

BOOKS: by Indian institute of banking & finance

Pension plan & annuity schemes

SEARCH ENGINE: www.google.com

www.yahoo.com

www.wikipedia.com

www.sbiindia.com


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Pensions by ATULBHAT

Documents

Transcript of Pensions by ATULBHAT