Banks To Embark On New Pension Plan

Public sector banks have in-principle decided to introduce such pension scheme for new recruits in the officer cadre. The cost of servicing the present defined benefit pension scheme has been mounting, with banks having to make provisions to the extent of 32 per cent of the employee''s annual salary. Under the new defined contribution scheme, banks would have to contribute only 10 per cent of the employee''s salary, including dearness allowance. The finance ministry had asked the banks to take a call on introducing the defined contribution pension scheme for their new entrants so that the scheme could be uniformly introduced for all public sector banks. The government had already introduced such a scheme for its employees, including officers, except the armed forces, from January 1, 2004. At present, the Bank Employees'' Pension Regulations, 1995, provides that all those who join the service of the bank on or after September 29, 1995, are compulsorily governed by the regulations and consequently eligible for pension. For changing the existing defined benefit pension scheme, bank boards can propose an amendment to the regulations which has to be notified by the government.

Banks, under the aegis of the Indian Banks'' Association, have informed the government that they would introduce the new pension scheme for fresh officer recruits. Under the government''s defined contribution pension scheme, the employee has to compulsorily contribute 10 per cent of the basic pay and dearness allowance every month. This contribution has to be matched by the employer.

The income that the employee receives is not fixed and depends on the returns earned on the funds contributed towards pension. For higher returns employees, can increase their contribution, even as the employer''s contribution remains fixed. The new employee would be given an appointment letter stating the conditions applicable. It is then upto the employee to accept or reject the terms of appointment, said the official.