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Banks  seek to stagger family pension  liability over  5  years

Department of financial services secretary Debasish Panda on Wednesday said the government has decided to remove the cap of  ₹9,284 for state-owned bank family pension and has put a uniform limit of 30% of the salary drawn.Premium
Department of financial services secretary Debasish Panda on Wednesday said the government has decided to remove the cap of 9,284 for state-owned bank family pension and has put a uniform limit of 30% of the salary drawn.

  • Family pension commences after the death of the pensioner and is payable to the person indicated in the pension payment order (PPO) on receipt of a death certificate and application from the family member of the pensioner.

State-owned banks will soon seek permission from the Reserve Bank of India (RBI) to spread the additional family pension liability over five years, after the government recently removed the cap of 9,284 per family.

A person aware of the development said that when pension liabilities are calculated by actuaries for the next 10-15 years, the entire amount has to be provided for in one go. However, since public sector banks have just returned to profitability, they want some more time to set aside the additional outgo.

Typically, upcoming pension liabilities are calculated for about 15 years so that even if there are problems with the institution at a later date, pensioners need not worry about their payouts.

Family pension commences after the death of the pensioner and is payable to the person indicated in the pension payment order (PPO) on receipt of a death certificate and application from the family member of the pensioner.

“The only way to provide for this additional liability in tranches is if we have special permission from the regulator. When pension outgo increases, the additional monthly outgo is not very significant, but because it has to be set aside for a period of 10-15 years, it is a sizeable sum of money," said the person cited above.

He said that the additional liability is yet to be finalized, and banks are in discussions on the quantum of provisions they would have to make. Lenders had earlier requested the government to remove the ceiling on family pensions as it made it difficult for the family member to survive on a paltry sum of money suddenly after the employee’s death.

“For instance, if a retired employee was drawing about 30,000 pension, how can family members suddenly live on less than one-third of that after his/her death? One should realize that cost of living does not come down so drastically," said the person cited above.

Department of financial services secretary Debasish Panda on Wednesday said the government has decided to remove the cap of 9,284 for state-owned bank family pension and has put a uniform limit of 30% of the salary drawn. Panda said that earlier the scheme had slabs of 15%, 20% and 30% of the pay that the pensioner drew at that point in time and was capped at 9,284.

“The cap has been completely removed, and a uniform slab of 30% of the pay will be entitled as family pension. It could go as high as 30,000-35,000 per family," said Panda.

In February, finance minister Nirmala Sitharaman had informed the Parliament that the Indian Banks Association (IBA) recommended that family pension be improved to 30% for all employees without any cap. She had then said that IBA’s recommendation was being considered by the government.

“Pension of pensioners of nationalized banks is financed by the respective bank out of its commercially generated revenues. Such pension was introduced as a funded scheme on the basis of consensus arrived at between bank employee unions/associations and the Indian Banks’ Association, which negotiated on behalf of participating banks," Sitharaman had said.

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