New Pension Scheme (NPS) is set to receive a major boost with the SBI...

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 sharpSBI’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.
Source - The Economic Times