Pensions by ATULBHAT

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

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

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
DECLARATION
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.
Student’s Signature
Dhawal K. Gada
Roll No.14
EXECUTIVE SUMMARY
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
PENSION:
A pension is a steady income given to a person (usually after

retirement). Pensions are typically payments made in the form of
a guaranteed annuity to a retired or disabled employee. Some
retirement plan (or superannuation) designs accumulate a cash
balance (through a variety of mechanisms) that a retiree can draw
upon at retirement, rather than promising annuity payments.
These are often also called pensions.
In either case, a pension created by an employer for the

benefit of an employee is commonly referred to as an
occupational 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 often
will pay benefits to survivors or disabled beneficiaries, while
annuity income insures against the risk of longevity.
While other vehicles (certain lottery payouts, for example, or

an annuity) may provide a similar stream of payments, the
common use of the term pension is to describe the payments a
person receives upon retirement, usually under pre-determined
legal and/or contractual terms.
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 :
Basic State Pension:

a)
You can claim the basic State Pension from State Pension
age: 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 as
having paid or have been credited with, National Insurance
contributions.
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 or

take 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.
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 you

can 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.
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 for

their 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.
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 while
drawing 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

Pension plans can vary greatly in terms of their structure and

the benefits they provide. The two most common types of pension
plans are the defined benefit plan and the defined contribution (or
money purchase) plan. Some employers offer a combination of
the two types of plans - known as "hybrid" or "combination" plans.
I. Defined Benefit Pension Plans
Defined benefit plans are designed to provide you with a

specified amount of pension benefit when you retire based on a
formula. Generally, this formula depends on factors like years of
service and earnings and is described in the pension plan
documents provided to members. Members of this type of plan
are advised annually of the amount of pension benefit they have
earned or "accrued" up to that point.
There are three types of benefit formulae commonly used to

determine 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 your
earnings over a fixed period of time. In other words your pension
adjusts in step with your wages. For example:
1.6% of your average earnings over the best 5 years of earnings x

your 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:

Your annual pension benefit is a fixed dollar amount per year of

service. For example:
$32 per month per year of service
A traditional pension plan that defines a benefit for an employee

upon that employee's retirement is a defined benefit plan.
Traditional defined benefit plan designs (because of their typically

flat accrual rate and the decreasing time for interest discounting
as people get closer to retirement age) tend to exhibit a J-shaped
accrual pattern of benefits, where the present value of benefits
grows quite slowly early in an employees' career and accelerates
significantly in mid-career. Defined benefit pensions tend to be
less portable than defined contribution plans even if the plan
allows a lump sum cash benefit at termination due to the difficulty
of valuing the transfer value.
On the other hand, defined benefit plans typically pay their

benefits as an annuity, so retirees do not bear the investment risk
of low returns on contributions or of outliving their retirement
income. The open ended nature of this risk to the employer is the
reason given by many employers for switching from defined
benefit to defined contribution plans. However, it should be
remembered that data over many years is available and thus
there is little risk. Further, the employer always has the option of
varying the proportion of the pay package going to salary or
benefits to keep the cost of the pay package constant. This
adjustment can be made at the time that the salary package is
being 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 an
older workforce. This age bias, the difficulty of portability and
open ended risk, makes defined benefit plans better suited to
large employers with less mobile workforces, such as the public
sector.
Defined benefit plans are also criticized as being paternalistic as

they require employers or plan trustees to make decisions about
the type of benefits and family structures and lifestyles of their
employees.
Albeit one that is constructed differently than a pension offered by

a private employer.
The "cost" of a defined benefit plan is not easily calculated, and

requires an actuary or actuarial software. However, even with the
best of tools, the cost of a defined benefit plan will always be an
estimate based on economic and financial assumptions. These
assumptions include the average retirement age and life span of
the employees, the returns earned by the pension plan's
investments and any additional taxes or levies, such as those
required by the Pension Benefit Guaranty Corporation in the U.S.
So, for this arrangement, the benefit is known but the contribution
is unknown even when calculated by a professional.
II. Defined Contribution Pension Plans
In a defined contribution or money purchase pension plan, a

specified amount of money is contributed regularly for you. This
money is placed in an investment account in your name. At
retirement, these contributions - plus interest - are used to
purchase a pension. You will not know the amount of pension you
will receive until you retire.
Some defined contribution plans permit employees to make their

own 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 the

contributions made by, or on behalf of you. It will also vary due to
the return on the investment of those contributions. Annuity rates
(i.e., long-term interest rates) at the time of retirement also may
be a factor.
The traditional form of pension is the life annuity. Typically with a

life annuity, your locked-in pension money is paid to a life
insurance company that guarantees the payment of a fixed
amount for your lifetime. Pension legislation has introduced the
following alternatives to the life annuity:
• A Registered Retirement Income Fund (RRIF) will allow you to

determine your level of income, as well as manage your
pension capital to take advantage of continued capital
growth from investment earnings, and to have more
flexibility for tax and income planning purposes.
• A Variable Benefit, which is similar in nature to the above

RRIF may be offered by a defined contribution plan. Check
with the administrator of your plan to see if this is a
retirement option under your plan.
• In a defined contribution plan, investment risk and
investment rewards are assumed by each
individual/employee/retiree and not by the
sponsor/employer. In addition, participants do not typically
purchase annuities with their savings upon retirement, and
bear the risk of outliving their assets.
• The "cost" of a defined contribution plan is readily calculated,
but the benefit from a defined contribution plan depends
upon the account balance at the time an employee is looking
to use the assets. So, for this arrangement, the contribution
is known but the benefit is unknown (until calculated).
• Despite the fact that the participant in a defined contribution
plan typically has control over investment decisions, the plan
sponsor retains a significant degree of fiduciary responsibility
over investment of plan assets, including the selection of
investment options and administrative providers.
Hybrid and cash balance plans

• Hybrid plan designs combine the features of defined benefit

and defined contribution plan designs. In general, they are
usually 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 plan
sponsor. As with defined contribution designs, plan benefits
are expressed in the terms of a notional account balance,
and are usually paid as cash balances upon termination of
employment. These features make them more portable than
traditional defined benefit plans and perhaps more attractive
to a more highly mobile workforce. A typical hybrid design is
the Cash Balance Plan, where the employee's notional
account balance grows by some defined rate of interest and
annual 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

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, on
furnishing 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 qualitatively
different. 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
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.
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 aside

and the benefits are paid for by the employer or other pension
sponsor as and when they are paid. Pension arrangements
provided by the state in most countries in the world are unfunded,
with benefits paid directly from current workers' contributions and
taxes. This method of financing is known as Pay-as-you-go. It has
been suggested that this model bears a disturbing resemblance to
a Ponzi scheme.
In a funded defined benefit arrangement, an actuary calculates

the contributions that the plan sponsor must make to ensure that
the pension fund will meet future payment obligations. This
means that in a defined benefit pension, investment risk and
investment rewards are typically assumed by the

sponsor/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 employers
must pay an insurance-type premium to the Pension Benefit
Guaranty Corporation, a government agency whose role is to
encourage the continuation and maintenance of voluntary private
pension plans and provide timely and uninterrupted payment of
pension 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 force
on 1st November, 1990. It is primarily a defined benefit scheme
that pays pension at a replacement rate of 50%.
Applicability:
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 were

allowed to join the scheme provided they returned the Bank's
contribution to provident fund and interest accrued on it along
with a simple interest at the rate of 6%. The interest was payable
for the period between the date of retirement and the date of
repayment. These employees started receiving pension from
1.11.1990. The employees were allowed to commute their
pension after due medical examination.
Operational framework
Benefits:
There are several classes of pensions and the pension an

employee receives depends on the manner in which he retires.
The full rate of pension for the retirees of the Reserve Bank is fifty
percent of the average emoluments subject to a minimum of
Rs.375/- per month in the case of a full time employee. In case of
a part time employee the minimum pension is a proportionate
amount which depends on the rate of wages applicable. An
employee who has put in 33 years of qualifying service is eligible
to receive full pension. In case of members with less than 33
years of qualifying service, the pension is a proportionate
depending on qualifying service.
The scheme also provides for a family pension after the death of
the 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
20% of pay, subject to a minimum of Rs.450
Rs.3000
15% of pay, subject to a minimum of Rs. 600 p.m.

Above Rs.3000
and maximum of Rs.1250
PENSIONS IN Public sector banks
History:
For a long time banks in India were covered only by the

Contributory Provident Fund and Gratuity. A defined benefit
pension scheme existed only in the State Bank of India. The fact
that some employees received pension benefits (for example
employees in the State Bank of India) and the rest of the
employees could never avail this facility became a major topic of
concern. There ensued a series of negotiations and settlements
between the Indian Banks Association and the Workmen’s' Union
(which comprised mainly of All India Bank Employees Association),
which resulted in the introduction of a pension scheme for all
banks.
Eligibility:
Pension scheme in public sector banks cover both full time

employees and part time employees. (Part time employees are
those who work for thirteen hours or more per week and have
served for at least ten years). The following classes of employees
are 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. In
case an employee decided to do so, he had to transfer the
bank's total contributions to the provident fund and the
interest accrued thereon, to the pension fund.
• Employees retiring between 1st January, 1986 and 1st
November, 1993. These employees could join the pension
scheme by paying back the bank's total contributions to the
provident fund and the interest accrued thereon, along with
a simple interest of 6% per annum.
Operational Framework
Contributions:
Old age income security in banks consists of a contributory

provident fund and a defined benefit pension scheme. In case of
the contributory provident fund, the bank contributes the same
amount as the employee does towards the provident fund. This is

10% of the employee's pay. Pay includes the basic pay including
stagnation increments, if any and all allowances counted for the
purpose of making contributions to the provident fund and for the
dearness allowance.
If an employee opted for the pension scheme, the ten

percent contribution of the bank which was earlier made to his
provident fund was transferred to the pension fund. This applied
to all employees working in the banks in 1993 and was
compulsory for all new employees recruited after 1993.
Benefits:
There are two kinds of pension benefits- pension available to

the employees and family pension for family members after the
death of the employee. An employee needs to fulfill certain
conditions to be eligible to receive pension. The formula for
calculating pension is (half of the average emoluments X number
of years of qualifying service)/33. The minimum amount of
pension received is Rs.375 per month in case of a member who
retired 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 basic

pension to allow for inflation. Dearness relief is granted on
member's pension or family pension or invalid pension or on
compassionate allowance. It is allowed on full basic pension even
after commutation (withdrawal of one third of money from the
basic pension).
Commutation of pension:
The scheme allows a member to take a fraction of monthly

pension as a lump-sum after retirement. This is known as
commutation of pension. The maximum amount a member can
take as a lump sum is 1/3rd of the basic pension admissible to
him. A pensioner, who has commuted a part of pension, shall
receive only the balance of the pension on monthly basis.
However the full value of the pension is restored after a period of

15 years from the date of commutation. The commutation is
admissible in respect of superannuation pension, voluntary
retirement pension, premature retirement pension, invalid
pension and compassionate allowance. If a pensioner dies after
the commutation has become payable, without receiving the
commuted value, it will be paid to his/her nominees.
The maximum amount that can be taken as a lump sum is

equal to basic pension X 1/3 X 12 X factor as per commutation
Table. The factor in the commutation table that is applicable
depends on the age of the member on the next birthday.
Commutation after one year from the date of retirement can

only be sought after medical examination. If the application for
commutation is made within one year after the date of retirement,
no medical examination is required in cases of superannuation
pension, premature retirement pension and pension on voluntary
retirement. 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 or
compassionate 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 an

employee from the service would disentitle him from any pension
benefit or payment. There could be exception only under the
condition where the Service regulations or Service Rules or
Settlements entitle such an employee to receive superannuation
benefits.
An employee who is deemed to have retired voluntarily from

the bank's service under the provisions for voluntary ceasation of
employment contained in Bipartite Settlement dated 10th April,
1989, shall entail forfeiture of past service and would not qualify
for pension.
Tax benefits:
The pension that an employee receives after his retirement

is subject to tax. However, the commuted amount up to one third
of the pension is tax free.
Investment:
Every bank has provision for the payment of pension or

family pension to the employees or his family. In order to have
such a provision, each bank constitutes its own fund, known as
the Bank (Employees) Pension Fund. To ensure proper
management, this fund is kept under a trust. This Trust has to be
constituted within one hundred and twenty days from the notified
date. It is important to have sufficient amount in the fund so that
the trustees managing the Fund are able to meet the due
payments and interests of the pensioners and beneficiaries. The
Bank here plays a vital role in contributing to the Fund. Each Fund
(Trust) has books of accounts containing details of all the financial
transactions relating to the Fund. The Trust also prepares the
financial statements which specify the assets and liabilities. An
account of the financial statement is sent to the Bank on a
periodic basis. For investigating into the financial condition of the
Fund an actuarial valuation of the fund is carried out every
financial year. All money contributed to the Fund has to be
deposited in a Post Office Savings Bank Account in India or in a
current account with any bank. The contributions are invested as
per the notified investment pattern. These investment guidelines
are meant for and followed by not only the pension scheme but
also by the provident fund scheme. The investment pattern as
envisaged in the above categories is achieved by the end of a
financial year (that is, 31st March of each year) 30.
Administration:
Every Fund is constituted in the form of a Trust. Every Bank

is vested with the responsibility of appointing the Trustees who
shall comply with the directions of the Bank for the proper
administration and functioning of the Fund. One of the Trustees is

the Chairman of the Board of Trustees and in case the Chairman
of the Trust is absent then the acting Chairman - another Trustee
acting as an alternate Chairman takes the responsibility for Fund
management. The pension fund in State Bank of India is
administered by the Pension, Provident fund and Gratuity
Department. The cost of the management of pension fund is
borne by the bank itself and not by the trustees.
Grievances:
The pension is paid to the retiree on a monthly basis. There

may 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 the
bank to complain about such a delay. In the State Bank Of India,
the retiree(s) can go to the Trustees or Pension, Provident fund
and Gratuity Department.
Transfer of job:
There might arise a situation where an employee resigns

from a bank before rendering or completing minimum number of
years of service and joins another bank/service. In such a case,
the employee would not be entitled to receive any pension from
the former bank as this leads to the forfeiture of this service and
hence pension. On the contrary, if he leaves the bank after
completing the minimum years of service required for receiving
pension and joins another bank or service, he would be entitled to
receive the pension benefits from the former bank. In situation
where an employee joins any other bank or service then, based on
the number of years of service. Rendered in the bank / service he
joins, he would be entitled to the pension. The services rendered
in the past or previous bank is not taken into account unless there
is a case of merger of the banks.
NABARD pensions
From India pensions:
The pension scheme in National Bank for Agriculture and

Rural Development was introduced in 1993. The scheme came
into force on 1st November, 1993 under Section 60 (1 (j)) of the
National Bank for Agriculture and Rural Development Act, 1981.
Eligibility:
Three classes of employees are eligible to receive pension

under 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
could opt to join the pension scheme by paying back the

bank's contribution to PF along with the interest received
from the bank, together with a simple interest at the rate of
6% per annum. The interest has to be paid for the period
between the date of withdrawal of the provident fund
amount and the date of refund.
Operational framework
Benefits:
Monthly pension:
A member has to render a minimum of ten years of service in

order to qualify for monthly pension. The qualifying service of an
employee commences the day he takes the charge of his post on
a permanent basis. Qualifying service of an employee also include
the following;
• The service on training or probation immediately prior to the

appointment 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 proved
unjustified.
The full rate of pension is payable to an employee who renders

thirty three years of qualifying service. If the number of years of
service is less than thirty three years, then pension payable is
calculated in proportion to the number of years of qualifying
service.
The rate of basic pension is fifty percent of monthly emoluments

for a full time employee. For a part time employee the rate of
basic pension is in a certain proportion to the rate of wages.
Family Pension:
n the case of death of the employee, the survivor of the deceased

is granted a family pension. Family pension is granted to the
dependents or survivors of an employee if he dies after
completion of one year of continuous service. If the employee dies
before completion of one year of continuous service, family
pension benefits are paid to the survivors provided that the
deceased employee was declared fit by the bank immediately
prior to his appointment. Family pension is also payable to the
dependents of an employee who had retired and was receiving
pension 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 is
survived by a widow / widower, the family pension would be
granted to her / him failing which it is granted to the eligible child.
The eligible child would receive the family pension till the time he
or she attains the age of twenty five years or start earning or get
married (in case of daughter) whichever is earlier. If the child is a
minor then the family pension would be received by his or her
legal guardian till the time he or she has attained majority. If the
child 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 employee

from the service would disentitle him from the past service and
hence from any pension benefit or payment
METHOD OF CALCULATION OF PENSION

Rates of Pension
Pension 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. The process of preparation of
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 the application 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 pension papers 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 Seal
Authority 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 Training

Department of Administrative Reforms & Public Grievances.
10 Common Causes of Errors in Pension Calculation

1. All relevant compensation, such as commissions, overtime,

and bonuses, (if these were to be included in your plan) was
not included in calculating your benefits.
2. The calculation was not based on all your years of service
with 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 your
benefits.
5. Basic information such as birthdate, and, or social security
number was incorrect.
6. Your company merged with another company, or went out of
business, and there is confusion over which pension
benefits 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 your
benefits.
Consumer Tips for Safeguarding Your Pension


Know your pension plan. Obtain and review your Summary Plan
Description (SPD), the rulebook for your pension.
Review your individual benefit statement and individual account

information. 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 or
benefit statements you've received.
Notify your plan administrator of any changes that may affect your
benefit payments (i.e., marriage, divorce, death of a spouse).
Know the person in your company who has information about your
pension plan and can give you plan documents.
Know how the merger or acquisition of your company will affect

your pension benefit. Know your pension rights. Request
information on your pension rights and how to protect your
pension. Call 1.866.444.3272 for publications.
Contact the Department of Labor's Employee Benefits Security

Administration if you have any additional questions about your
rights under the law.
CURRENT CHALLENGES
A growing challenge for many nations is population aging. As birth

rates drop and life expectancy increases an ever-larger portion of
the population is elderly. This leaves fewer workers for each
retired person. In almost all developed countries this means that
government and public sector pensions could collapse their
economies unless pension systems are reformed or taxes are

increased. One method of reforming the pension system is to
increase the retirement age. Two exceptions are Australia and
Canada, where the pension system is forecast to be solvent for
the foreseeable future. In Canada, for instance, the annual
payments were increased by some 70% in 1998 to achieve this.
These two nations also have an advantage from their relative
openness to immigration. However, their populations are not
growing as fast as the U.S., which supplements a high immigration
rate with one of the highest birthrates among Western countries.
Thus, the population in the U.S. is not aging to the extent as those
in Europe, Australia, or Canada.
Also the condition of the historical data and its development into a
secure database can be an expensive and labor intensive
endeavor. Currently, the trend to develop on line electronic
calculators that replace traditionally complex spreadsheet
calculations performed by Actuaries and Analysts is the industry
norm in records management.
Another growing challenge is the recent trend of businesses in the

United 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 Benefit
Guaranty 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 am
particularly concerned with the temptation, and indeed, growing
tendency, to use the pension insurance fund as a means to obtain
an interest-free and risk-free loan to enable companies to
restructure. Unfortunately, the current calculation appears to be
that shifting pension liabilities onto other premium payers or
potentially taxpayers is the path of least resistance rather than a
last resort.”
LATEST IN NEWS
REVERSE MORTGAGE
Old age comes with its own share of problems. As a person grows
older, and his regular source of income dries up, his dependency
on others can increase significantly. With health care expenses on
the rise and little social security, living the golden years
respectfully can be quite a challenge for senior citizens. In such a
scenario, a regular income stream that can help them meet their
financial needs and maintain their current living standards
becomes important.
One typical feature with most senior citizens is that their

residential property accounts for a significant portion of their total
asset pie. And, given its illiquid nature, property fails to aid senior
citizens on the liquidity front
AIn the Union Budget 2007-08, a proposal to introduce 'Reverse

Mortgages' was put forth. To understand the concept of reverse
mortgage, first let us understand what a regular mortgage is. In a
regular mortgage, a borrower mortgages his new/existing house
with the lender in return for the loan amount (which in turn he
uses to finance the property); the same is charged at a particular

interest rate and runs over a predetermined tenure. The borrower
then has to repay the loan amount in the form of EMIs (equated
monthly installments), which comprise of both principal and
interest amounts. The property is utilised as a security to cover
the risk of default on the borrower's part.
In the reverse mortgage, senior citizens (borrowers), who own a

house property, but do not have regular income, can mortgage
the same with the lender (a scheduled bank or a housing finance
company-HFC). In return, the lender makes periodic payment to
the borrowers during their lifetime. In spite of mortgaging the
house property, the borrower can continue to stay in it during his
entire life span and continue to receive regular flows of income
from the lender as well. Also, since the borrower doesn't have to
service the loan, he need not bother about repaying the 'borrowed
amount' to the lender.
The concept of reverse mortgage, although new in India, is very

popular in countries like the United States. Recently, National
Housing 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 of
the scheme from the draft norms.
1. As per the norms, a house owner who has crossed 60 years of

age is eligible to seek a loan of up to 60% of the value of
residential property by mortgaging the same (for the maximum
period of 15 years) with a bank/HFC, while retaining the right to
stay in the property. The borrower i.e. house owner is not required
to pay back the loan amount.
2. In terms of receiving the loan amount, the borrower can opt for
monthly, quarterly, annual or lump sum payments or payments at
any other point in time as per his discretion. Also, a revaluation of
the property has to be under taken by the bank/HFC once every 5

years. Consequent to the revaluation, necessary changes will be
made to the loan amount. However, the bank/HFC will have the
discretion to decide the mode of payment of loan and to
determine the tenure of the loan, depending on factors like the
state and market value of the property and age of the borrower,
among others.
3. The borrower can use the loan amount for various purposes like
renovation and extension of the residential property,
maintenance/insurance of the residential property and family's
medical or emergency expenditure, among others. However, the
loan amount cannot be used for any speculative or trading
purposes.
4. The interest rate on the reverse mortgage will be determined

by the bank/HFC based on the risk perception and loan pricing
policy, among others. Fixed and floating rate of interest may be
offered, subject to a transparent disclosure of the terms and
conditions 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 or
earlier, if the borrower leaves the mortgaged residential property
permanently. Any excess amount will be remitted back to the
borrower or his heirs. However, before resorting to sale of the
house, preference will be given to the owner or his heirs to repay
or prepay the loan amount, along with the interest, and to get the
mortgaged property released.
6. The amount received through reverse mortgage is considered

as loan and not income; hence the same will not attract any tax
liability.
BANGALORE: The Union Bank of India on Friday launched its

"Union Reverse Mortgage Scheme", a loan product designed
exclusively for the benefit of senior citizens.
The bank is the fourth in the country to launch the scheme

through which the loan seeker need not worry about re-payment
and be assured of monthly income; the Bank's Bangalore Zone
Field General Manager L N V Rao told a press meets here.
The loan will be available to homeowners who are 60 years of age

or more and can be availed jointly with the spouse, provided he or
she 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. The

loan 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 be

made 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.
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
 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
Eligibility absolute, clear title / conveyance
and self-occupied and it should be
Principal 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 Loan  The maximum amount of loan
amount along with interest is restricted to
Rs. 100 lakh i.e. maximum loan
amount would be Rs.40 lakh.
 The amount of loan will depend

on market value of the residential

property as assessed by the Bank.
 Meeting any genuine need
Purpose of (Reverse Mortage Loan(RML) for
Loan speculative, trading purposes shall not
be permitted)
Monthly  @ Rs. 555/- per Rs. 1 lakh loan
annuity
payable by the
Bank
 BPLR + TP minus 3.00 %
(presently 10% fixed ), with reset
Interest Rate clause
The interest rate will be reset once
in five years
 Mortgage of residential property
in favour of Bank
 Bank reserves the right to seek

Security additional collaterals
Note : Commercial property will not

be eligible for RML( Reverse
Mortage Loan ).
 15 years, with a provision to roll
over, in case of need, after
revaluation
Period of Loan
 Fresh terms, as at the time of
rollover, will be applicable.
Repayment  The loan shall become due and
terms payable
1. at the end of the stipulated
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 by
the 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 legal
heirs can be insisted upfront).
 The Assets-Flat/House property
Insurance of should be, insured against fire,
property earthquake and other calamities by
the borrower
PENSION FUND MANAGEMENT

The Reserve bank of India on Thursday allowed banks to
undertake pension fund management business through their
subsidiaries. The subsidiaries would, however, be required to
maintain arms-length relationship with the bank since the
regulator has debarred them from undertaking the pension fund

management business departmentally.
To provide adequate safeguards against associated risks and

ensure that only strong and credible banks enter into the business
of pension fund management, the regulator has allowed only
profitable banks, with have net worth of not less than Rs 500
crore, capital adequacy ratio of more than 11% and return on
assets of not less than 0.6% to undertake the business.
Besides this, the banks venturing into pension fund management

need 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 product
being at least 25 to 30 years.
The Reserve Bank has permitted banks to set up subsidiaries

through joint venture with foreign partners. But, the foreign
investment in subsidiary companies managing pension fund has
been capped at 26%. Interestingly, while calculating the FDI in the
subsidiary company, the foreign holding in the promoting bank
will not be calculated on pro-rata basis.
RBI in a notification on Thursday evening said the bank interested

in floating a subsidiary should obtain prior permission of the
central bank. The investment in the subsidiary should be limited
to 10% of its own paid-up capital and reserves.
At the same time, the bank’s total investment by way of

equity contributions in its existing subsidiaries, the proposed
pension funds subsidiary and those formed in future together with
portfolio investments in other financial services companies should
not exceed 20% of its paid-up capital and reserves. The bank
should evolve a suitable system to monitor operations of the
subsidiary.
State Bank, PNB, LIC interested in

Pension fund management’:
STATE Bank of India, Punjab National Bank, Life Insurance

Corporation, along with a number of private entities, are
interested in foraying into pension fund management, according
to Mr. D. Swarup, Chairman, Pension Fund Regulatory and
Development Authority (PFRDA).
He also indicated that about Rs 3,500 crore has been

accumulated (since last year) under the new scheme for Central
government employees - a corpus that now needs to be allocated
more rationally.
This corpus, in fact, is set to increase progressively with each

passing year. A few State governments have agreed to join the
movement. Incidentally, a great number of people working for the
government regularly came under the ambit of the scheme even
as large-scale retirement and departure took place, he added. He

was addressing a meeting organised by the Bengal Chamber of
Commerce & Industry recently.
It is learnt that pension fund management outfits may be

allowed to have a minimum capital base of less than Rs 100 crore,
although no decision on the matter has been reached. Insurance
companies are required to have a minimum base of Rs 100 crore
in line with the current norms.
The market, it is pointed out, is at this stage keen to know

more on a host of critical issues, including the central record
keeping 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 new

dispensation, Mr. Swarup said. Already, a large body of opinion
has formed with regard to the continuity of PPF. The latter is
marked by a relatively high rate of interest, a feature that has
been 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 benefit

plan or a simplified pension plan (SIPP), it will nicely complement
public plans. The main objective of supplemental pension plans is
to provide retirement income over and above that paid by the
public plans.
Concrete advantages for employees and employers:
A supplemental pension plan is part of the fringe benefits that an

employer can offer his employees. Besides the financial security it
offers after retirement, it is a form of deferred pay appreciated by
employees. For the employer, having a plan can make it easier to
attract 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 santé, etc.
• Investment incomes generated by the pension fund in which
contributions 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.
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 on
the demand for a comprehensive review of the pension scheme
that had been in vogue for several decades. The strike was total in
all the 9,000 branches of SBI, with the officers and employees
under 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 the
employees. The CITU general secretary Chitrabrata Majumdar in a
congratulatory letter to the employees on April 11 hailed it as a
glorious victory in the backdrop of the adamant stand adopted by
the finance ministry. "It is the rocklike determination and
solidarity manifested by the lakhs of your members that forced
that ministry of finance to come down from its ivory towers and to
accede to the genuine demands of the workforce in the larger unit

of public sector banks in the country", he stated.
While the bank offices remained shut during the strike, the
strikers 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 umbrella

organisation, comprising nine federations of bank officers and
employees had extended support to the strike in SBI.
PENSION ISSUE :
In the entire banking industry, State Bank of India was the first
institution to have a pension scheme for its staff in place, since
several decades. Subsequently, as a result of an agreement
between the Indian Banks Association and the bank unions, a
pension scheme was introduced covering the employees and
officers of the other banks as well. The Reserve Bank of India also
introduced a pension scheme for its staff. But, the pension
scheme of the State Bank of India had remained almost
unchanged, even while these schemes were introduced in other
banks. Moreover, the family pension had not been revised in the
last 20 years.
A major discrepancy in the pension scheme for SBI, when

compared with the other public sector banks, is that for SBI staff
there is a ceiling on pension income, fixed at Rs 5,600 per month
for calculation of monthly pension payable, whereas for the rest of
the banking industry it is 50 per cent of the last pay received with
no 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 dearness
allowance on pension on par with industry; and upgradation of
basic pension of all past retirees taking into account the current
merger of index at 2,288 points " . The present strike is, in the
main, on these demands.
IMPACT OF STRIKE :
The strike had hit the banking operations in the country with the
cheque-clearing, forex and call market operations seriously
affected. SBI handles 25-30 million transactions a day and as such
the strike had a paralysing impact throughout the country. The
Reserve Bank of India (RBI) took over the clearing operations in
most of the major centres operated by the SBI, but transactions
involving the SBI could not be processed, thus the clearing
operations 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 SBI
ATMs 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 the

strike – the management and the staff – declaring that they were
prepared for a dialogue to resolve the issues involved. A K Purwar,
chairman, SBI, said, "We are trying to sort out the issue. We are
talking to all concerned (the unions, the government etc) and
hope to find a solution soon." From the staff side, T N Goel, vice
president, All-India SBI Officers Federation stated: "We are willing
to talk and negotiate on the issue if the government calls us."
THE ROADBLOCK :
The representatives of the striking staff had a discussion with the

union labour minister on April 2, along with a representative of the
finance ministry. It was reported that the unions were asked to
put the issue on hold until the assembly elections, under way in
five states, are over. But the unions refused to budge without a
firm commitment on meeting the demands.
The major roadblock to a settlement of the strike was the stand

taken by the finance ministry, with senior officials indicating that
the government was not in favour of acceding to the demands as
it could result in similar demands being placed by other state-

owned banks.
Another round of conciliation meeting with the chief labour

commissioner was held on April 5, but there was no outcome. The
finance ministry had a grand design. It is keen to push the New
Pension System (NPS), which has been imposed on the
government employees recruited after January 2004, to the arena
of financial sector as well. In fact, the pension sector reforms –
actively pursued by the finance ministry – aims at liquidating the
very concept of defined benefit pensions. This is one core aspect
of the problem.
The CITU had extended support to the strike by the employees

and officers of the State Bank of India. It held the finance ministry,
which had taken an unrelenting stance, as responsible for the
present impasse and demanded the intervention of the prime
minister.
FINAL AGREEMENT :
The strike by employees of SBI continued for a whole week for

wisdom to dawn upon the finance minister to extend an invitation
late on the evening of April 8 to hold further negotiations. After
hectic day-long negotiations on Sunday (April 9) between the
management and the unions in the presence of top finance
ministry officials, a new formula on the pension issue was agreed
upon.
Under this, the fresh `cut-off' of basic pay for determining pension
has 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 cent
of that amount, while those earning above that level would get 40
per cent for the incremental amount above Rs 21,040 "subject to
a minimum of 50 per cent of Rs 21,040".
With this successful resolution of the pension issue, the seven-day

long strike was called off. Announcing the settlement, the finance
minister commented, "The financial implications are within the

financial capacity of SBI." Here comes the moot question: If that is
so, who is responsible for the inconvenience caused to the
banking public and who inflicted the enormous loss on the leading
public sector bank? The answer is simple: 'It is the ego of the
finance ministry that held the bank, its employees and the public
to ransom for a week.' Thankfully, the agony has ended!
BRACING FOR ANOTHER STAND OFF? :
The finance minister also hoped that the revised package was not
expected to result in similar competitive demand from other
public sector banks, as other nationalised banks had their own
formula. But, he would do well to remember that following the last
industry wage settlement of 2005, the bank unions and the Indian
Banks Association had been in dialogue over the long pending
demand of the employees of other banks for an opportunity to
exercise the option for the pension scheme.
This is yet another dimension to the pension issue in the banking

sector, which could plunge the entire industry into a crisis. The
finance ministry had been sitting tight-lipped over a demand of
the bank unions for one more option for pension and upgradation
of pension in the other PSU banks. When the pension scheme for
the staff of the other PSU banks was introduced in the 90's, it
provided for an option of choosing either pension foregoing
employer's contribution to provident fund or availing employer's
contribution to provident fund, foregoing pension. The employees,
who at that time did not opt for pension, constitute a significant
number and want to opt for the same in the changed scenario of
falling interest rate regime. This demand is strengthened by the
fact that the RBI, which introduced a pension scheme later, had
provided such option to its staff at the time of subsequent wage
settlements.
Is the finance ministry bracing for another stand off on this? Or

will it respond in time to the wake up call?
CONCLUSION AND
RECOMMENDATION
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.
BIBLIOGRAPHY
BOOKS: by Indian institute of banking & finance
Pension plan & annuity schemes
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Pensions by ATULBHAT

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PENSION SCHEMES IN BANKING SECTOR

BANKING & INSURANCE

GUIDE NAME: SUBMITTED BY:

Maharshi Dayanand College,

Parel Mumbai – 400 012

BANKING & INSURANCE

In Partial Fulfillment of the requirements

For the Award of the Degree of

Bachelor of Commerce – Banking & Insurance

Maharshi Dayanand College,

Parel Mumbai – 400 012

Maharshi Dayanand College,

Parel Mumbai – 400 012

under the guidance of

Course Coordinator Principal

Project Guide/ Internal Examiner

I, , the student of B.Com –

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

TYPES OF PENSION PLANS

7. PENSION STRIKE BY S.B.I.

8. CONCLUSION AND RECOMMENDATIONS

A pension is a steady income given to a person (usually after

In either case, a pension created by an employer for the

Occupational pensions are a form of deferred compensation,

While other vehicles (certain lottery payouts, for example, or

Basic State Pension:

You can get a basic State Pension by building up enough

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

You can claim it later and get a higher weekly amount or

b) Additional State Pension:

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

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

II. Personal pensions :

You can start receiving an income from a personal pension from

There's no limit on the number of personal pension schemes you

Stakeholder pensions are open to everyone and may be worth

With stakeholder pensions, you can start receiving an income

b) Group personal pension through your employer :

Some employers offer access to a personal pension scheme.

Your employer will usually select a pension provider (for

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

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

III. Company (occupational) pensions :

Company (occupational) pensions are set up by employers for

In most cases, your employer will make contributions to the

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

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

You get tax relief on your contributions to company pensions –

IV. Pensions for the self-employed :

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

Types of Pension Plans

Pension plans can vary greatly in terms of their structure and

I. Defined Benefit Pension Plans

Defined benefit plans are designed to provide you with a

There are three types of benefit formulae commonly used to

 final or best average earnings formula:

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

1.6% of your average earnings over the best 5 years of earnings x

 career average earnings formula:

Your annual pension benefit is a fixed percentage of your annual

1.2% of your annual earnings

 flat benefit formula:

Your annual pension benefit is a fixed dollar amount per year of