MUMBAI: The Central government-sponsored New Pension Scheme (NPS) is set to receive a major boost with the State Bank of India, moving a significant part of its employees’ pension corpus to the scheme. The NPS will also get significant contributions in coming months by way of employer and employee contribution towards the pension of public sector bank employees who join after April 1, 2010.
A senior official at the pension regulator PFRDA said NPS fund managers will henceforth manage a chunk of a fund that helps pay for retirement benefits of all present and former employees of the country’s largest lender.
“We received various queries from SBI regarding the nitty-gritties of our scheme,” said Rani Singh Nair, executive director at PFRDA. “We are happy to report that they have now joined us and we hope many others will also be encouraged to follow the example,” she told ET.
Industry officials say SBI is moving close to Rs 2,000 crore out of its about Rs 25,000-crore employees retirement corpus to NPS. The bank feels that NPS will help the fund fetch better returns than the current system it has in place.
As per published data, in-house fund management of most stateowned banks earned 8-9 % annualised returns in the fiscal year ended March 2009. NPS earned nearly 16%. It is this higher yield that SBI is trying to capture by participating in NPS.
In terms of the agreement between IBA and bank unions, all bank employees joining after April 1 will migrate to a defined contribution scheme. Since several public sector banks are planning to recruit clerks and probationary officers in the coming months, the number of NPS accounts are expected to grow sharply.
SBI’s chunk is a part of an overall corpus that pays for certain retirement benefits of employees, including the defined benefit pension.
Besides SBI, several state-owned corporations such as Nalco and Damodar Valley Corporation (DVC) have transferred a portion of their employees retirement benefit corpus to the NPS to take advantage of the benefits of economies of scale in managing retirement funds.
Unlike employees at state-owned banks, SBI employees are supposed to enjoy a “third benefit” as a part of their superannuation package. While others receive only provident fund (or pension) and gratuity post-retirement, SBI executives additionally get a third pension component.
This is done on a “defined benefit” basis, where the bank promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than as a function of investment returns.
Leave a Reply