Background for Pension Facilities in Banking Industry in India

Background for Pension Facilities in Banking Industry in India :
The present guidelines indicate that employees who have joined in the service of the bank on or after 29-09-1995 are automatically covered under the Pension Scheme. However, employees who were in the serving in the banks up to 28.09.1995 have to opt for Pension. This option was allowed as one time exercise in 1995, and employees who opted for Pension were not eligible for the bank contribution to PF.

A) Various Types of Pension

The following types of Pension are normally available to employees in banks, under Employees Pension Regulations, 1995:-

1. Superannuation Pension.:

Granted on attaining the age of superannuation. Minimum 10 years qualifying service required. Maximum service reckoned is 33 years (for this purpose fraction of service in excess of 6 months will be reckoned as one year).

2. Pension on Voluntary Retirement.

Minimum 20 years qualifying service is required. The qualifying service of an employee retiring voluntarily shall be increased by a period not exceeding five years subject to the condition that the retiree has got remaining service of 5 years and the total qualifying service shall not in any case exceed 33 years.

The employee may give notice of not less than three months in writing to the appointing authority; seeking voluntary retirement. The notice of voluntary retirement shall require acceptance by the appointing authority.

3. Invalid Pension.

This is applicable to employees who retire from service on account of bodily or mental infirmity, which permanently incapacitates him from the service. Minimum 10 years qualifying service is required to apply for invalid Pension. He has to submit a medical certificate of incapacitation from a Medical Officer approved by the bank.

4. Compassionate Allowance.

An employee who is dismissed or removed or terminated from service shall forfeit pension. In such cases the authority higher than the authority competent to dismiss or remove or terminate him may, if the case is deserving of special consideration, sanction of a compassionate allowance not exceeding two third of the Pension which would have been admissible to him on the basis of the qualifying service rendered up to the date of dismissal.

5 Premature Retirement Pension.

Premature retirement pension may be granted to employees who have rendered minimum 10 years of service and retires from service on account of orders of the bank to retire prematurely in the public interest or for any other reason specified in service regulations or settlement; if otherwise he was entitled to such pension on superannuation on that date.

6 Compulsory Retirement Pension.

An employee compulsorily retired from service as a penalty in terms of service regulations or settlement by the authority higher than the authority competent to impose such penalty may be granted Pension at a rate not less than 2/3 and not more than full Pension admissible to him on the date of his compulsory retirement, if otherwise he was entitled to such pension on superannuation on that date.

B) Rate of Pension :

Minimum Pension Rs 1435/- per month, who retire on or after 01.05.2005.

C) Maximum Pension

Those who have got 33 years of qualifying service will get 50% of their average emoluments as Basic Pension and where the qualifying service is less than 33 years; the basic pension would be proportionate to their service.

D) Calculation of Basic Pension.

Average of 10 months pay prior to the date of retirement has to be calculated (pay includes BP + increment component of FPP+PQP).

Basic pension = (10 months’ Average Pay x No of years of service) / (2x33)

E) Dearness Relief on Basic Pension.

In respect of employees who retire on or after 1.5.2005, Dearness Relief shall be payable for every rise or be recoverable for every fall, as the case may be of every 4 points over 2288 points in the quarterly average of the All India Average Consumer Price Index for Industrial Workers in the series 1960 = 100, at the rate 0.18% of Basic Pension.

F) Family Pension :

In the event of death while in service or after retirement, family pension shall be payable to spouse/dependents at the following rates w.e.f. 01.5.2005.

Scale of pay per month Amount of Family Pension

Upto Rs 5720 30% of the pay as family pension

with minimum of Rs 1435/-

Rs 5720 to 11440 20% of the pay as family pension

with minimum of Rs 1715

Above Rs 11440 15% of the pay as family pension

with minimum of Rs 2292 and

Maximum of Rs 4784

Dearness Relief is applicable to Family Pension at the same rate applicable to Pension.

There is no stipulation for minimum service for Family Pension. In the case of an employee who dies after 7 years of service, higher family pension equal to 50% of pay last drawn by the deceased employee or twice the ordinary rate of family pension whichever is less, is payable till the date of deceased employee would have attained the age of 65 years subject to a maximum period of 7 years.

Also in the event of death after retirement, before attaining the age of 65 years, higher family Pension as above shall be given. Pay for this purpose has to be computed as given in clause D above.

G Commutation of Pension

One third of Basic Pension may be commuted.

Commuted Value = 1/3rd Basic Pension x 12 x factor corresponding to age next birthday as on date of application for commutation as given in the table below.

After commutation, monthly Pension will be 2/3rd of Pension but D.A. is payable on full Pension. At the end of 15 years after commutation, full pension shall be restored. Commutation amount is exempted from Income Tax.

H. Gratuity
Gratuity is payable on death, retirement, permanent disablement or resignation of an employee and it is calculated by two methods as given below and the amount whichever is higher will be paid. Gratuity amount up to 3.50 lacs is exempted from Income Tax.


I. Gratuity Act 1972:

An employee is eligible for gratuity after completion of 5 years of service. The Gratuity payable under the act is 15 days wages for every completed years of service. The maximum gratuity payable under the Act is Rs.3.50 lacs.(AIBOC has represented to the Labour Ministry to raise the maximum limit to Rs 10 lacs, as allowed to Central Govt Employees).

Wages for this purpose will mean Basic Pay + PQP + FPP (less HRA component) + Dearness Allowance).

The Calculation is as follows:

Gratuity Amount = (Wages) x No of year of service x 15/26

j. Gratuity as per Service Regulations

An employee is eligible for gratuity after completion of 10 years service. The gratuity payable is 15 months pay up to 30 years of service plus additional 15 days pay for every completed years of service beyond 30 years (Pay for this purpose means BP + PQP + Increment component of FPP).