The basic
purpose of a pension is to provide financial security through regular payments
to the employee when he is unable to work because of his old age or infirmity.
Such financial security is also provided to the dependent family members of his
family in the event of his death.
Before the year April 2010, employees of Public Sector Banks were governed by the provisions of the Old Pension Scheme (OPS).
The Old Pension
Scheme (OPS) falls in the category of Defined Pension Benefit Scheme which
means that the pension an employee will receive after his retirement or
otherwise is fixed based on his length of service and pay drawn during the last
10 months of his service.
On the
contrary, New Pension Scheme (NPS) falls in the category of Defined
Contributory Pension Scheme which means that the pension an employee will
receive after his retirement or otherwise is fixed based on the corpus
accumulated at the time of his retirement by the contributions made by him.
Ever since the
New Pension Scheme (NPS) is introduced in the Banks, there is a continuous
debate over whether the Old Pension Scheme (OPS) was better or whether the New
Pension Scheme (NPS) is better. We have a large number of proponents on both
sides of the debate.
Though it is
outside the purpose and scope of this article to discuss all the features of
the Old Pension Scheme (OPS) vis-à-vis New Pension Scheme (NPS) or to get into
the debate of which pension scheme has an advantage over the other, however, we
would like to bring to the notice of the Banker’s community a significant
shortcoming of the New Pension Scheme (NPS) which must be addressed immediately
in the ongoing Bipartite Settlement negotiations itself.
We will proceed
with an example.
Suppose, there
is an employee named Jai who joined a Public Sector Bank on 31st March 2010. As
Jai joined the Bank before 1st April 2010, he is covered under the Old Pension
Scheme (OPS).
Now, consider
another employee of the same bank named Veeru who joined the bank on 1st April
2010. This means Veeru is covered under the New Pension Scheme (NPS).
Further, assume
that one fine weekend just a few days after their joining the Bank they went to
Ramgarh to meet their old friend, Thakur, however, unfortunately on their way
back home they were attacked and killed by the local dacoit Gabbar.
What do you
think will be the consequences of them being covered under different pension
schemes of the Bank?
For Jai – who
is covered under the Old Pension Scheme (OPS), his wife Radha will get a family
pension. The Basic Family Pension would be equal to 30% of the last Basic Pay
drawn by the employee. In addition, she will get the dearness allowance at
applicable rates on the Basic Family Pension. This family pension will provide
much-needed support to the aggrieved family to meet their day-to-day expenses.
However, in the
case of Veeru – who is covered under the New Pension Scheme (NPS), his wife
Basanti will not get any family pension at all and the family might run into
financial turmoil.
Though such a
scenario is hypothetical it is not something that could never happen. A few
days ago a car plunged into a canal and three employees of a Public Sector Bank
drowned in the accident.
The employees
who are covered under the New Pension Scheme (NPS) of the Banks are always
under threat that in the event of any such unfortunate event their families are
not financially secure. To mitigate this risk, every bank employee covered
under the New Pension Scheme (NPS) must buy a Term Plan according to his needs
and circumstances.
Through this
example, we believe it is amply clear that Old Pension Scheme (OPS) has a clear
advantage over New Pension Scheme (NPS) in case of untimely death as far as
Bank Employees are concerned.
That the Old
Pension Scheme (OPS) is akin to a safety net for the employees and this safety
net has been taken away by the New Pension Scheme (NPS).
But there’s
even more to it.
To give a
contrasting picture, we now discuss the provisions available for Central
Government Employees covered under the New Pension Scheme (NPS).
In the case of
the Central Government Employees, the New Pension Scheme (NPS) was introduced
in 2004. Accordingly, all such employees who have joined the service on or
after 1st January 2004 come under the ambit of the New Pension Scheme (NPS).
In the case of
Central Government Employees who die while in service, a special provision is
available which is not available to the Bank Employees.
The Central
Government employees who are covered under the New Pension Scheme (NPS) are
allowed to choose between the benefits under Old Pension Scheme (OPS) or
accumulated pension corpus under the New Pension Scheme (NPS) in the event of
their death. The family, however, is not eligible to exercise this option after
the death of the employee.
Further, if the
Central Government Employee has not exercised such an option, then by default,
if the employee has died within 15 years of service, his family will get the
benefit of the family pension under the Old Pension Scheme (OPS) and if he dies
after 15 years of service, his family will get the accumulated pension corpus
under the New Pension Scheme (NPS).
This provision
restores the missing safety net in the event of an unfortunate event to the
family members of the deceased Central Government Employees.
We would like
to reiterate that a pension's very purpose is to provide protection to an
employee in his old age and to his family when he is no longer available to
look after them.
The absence of
family pension for Bank Employees is discriminatory on one hand and defeats the
very purpose of pension on the other. At present, more than 65 percent of the
employees in Banks are covered under the New Pension Scheme (NPS) but nobody is
bothered about their rights and needs.
It is
worthwhile that Bank Employee Unions must include this demand in their ‘Charter
of Demands for 12th Bipartite Settlement’ to bring this hitherto ignored safety
feature into the New Pension Scheme (NPS).