Centre approves proposal to hike family pension, employer contribution to NPS for public sector bank employees

The Government of India has approved a proposal by IBA to increase family pensions of public sector employees along with employer contributions to the National Pension System (NPS). Here's all you need to know.

Centre approves proposal to hike family pension, employer contribution to NPS for public sector bank employees

There is cause for cheer for over 10 lakh public sector bank (PSB) employees and pensioners. After protracted negotiations, the central government has approved a proposal by the Indian Banks' Association (IBA) to increase the family pension of PSB employees to 30 per cent of last drawn salary.

The other big announcement is an increase in the employer banks' contribution to the pension fund of employees under the NPS (National Pension System) from the existing 10 per cent to 14 per cent.

The immediate benefit of this approval will be an increase of 30,000 to 35,000 in the family pension of public sector bank employees from a maximum of 9,284 per month, depending on the last drawn salary of the deceased bank employee.

Earlier, both the employer and employee contributed 10 per cent each of basic salary. Now, the employer (bank) will contribute 14 per cent, while the employee will continue to contribute 10 per cent to the NPS.

The announcements were made after Union Finance Minister Nirmala Sitharaman's two-day visit to Mumbai to review the performance of public sector banks. During her visit to Mumbai, FM Sitharaman also launched the EASE 4.0 reform agenda for smart-banking.

Making the announcement on Wednesday, Secretary of Department of Financial Services (Ministry of Finance) said, "In continuation of the 11th bi-partite settlement on wage revision of public sector bank employees, which was signed by the IBA with the unions on November 11, 2020, there was a proposal for enhancement of family pension and also the employers' contribution under the NPS."

"This has been approved by the Finance Minister," Secretary Debasish Panda added.


Top sources in the government said the incremental provision towards family pension by banks as per the actuarial estimate is 20,302.90 crore, keeping in view the requirements of the Accounting Standard (AS15R) issued by Chartered Accountants of India as per the Companies Accounting Rules (2006).

Based on feedback received from banks, the additional cost on account of increased contribution to the NPS will be around 1,080 crore per annum for all public sector banks (PSBs).

A special dispensation will be sought from the RBI to allow said provisions over the next five years to avoid any immediate adverse impact on the balance sheets of the banks.


Sources told India Today that a total of 10,11,756 employees, including retired employees, are covered under the pension system. Of these, 3,11,700 are serving employees and 5,65,977 are pensioners as of March 31, 2021.

Approximately 4,67,900 (about 60 per cent) of public sector bank employees are covered under NPS while the total current staff strength stands at 7,79,250.

Secretary Debasish Panda also said that under the earlier arrangement, the pension system had slabs of 15, 20 and 30 per cent of the salary that a pensioner drew at that point of time.

"It was capped subject to a maximum of 9,284. That was a very paltry sum. Finance Minister wanted it to be revised so that family members of bank employees get a decent amount to survive and sustain themselves," he added.


General Secretary of the All India Bank Employees Association (AIBEA), CH Venkatachalam, welcomed the announcement. Public sector bank employees had been waiting for it for a long time, he said.

In a circular, the AIBEA had stated that as per the agreement, retrial benefits will go up.

Venkatachalam said, "Under this settlement, care has been taken to improve retrial benefits. For the young employees who have joined banks after April, 2010, the management's contribution to the new pension system would be 14 per cent instead of the present 10 per cent i.e. a 40 per cent increase in the amount of bank's contribution to the fund."

"For senior employees, there would be increases in gratuity, pension, commutation and leave encashment amounts," he added.

CH Venkatachalam also said that the increase in family pension will also apply to families of existing employees who may lose their loved one during service or after retirement.

The upper cap on pension, which was not revised since formation of pension regulations, meant that the families of deceased employees, including families of deceased General Manager, would get 13,282 per month (total family pension is 16,973 including Dearness Allowance) while the family of a sub-staff would get a maximum of 5,306 as basic family pension (total family pension of 6,781 including applicable DA).

The problem with the earlier arrangements was that family members of no employees would get more than the stipulated upper cap, even if 15 per cent of basic pay worked out to be more than the upper cap. Effectively, the family pension would be much less than 15 per cent of the last drawn basic pay as per the earlier arrangement.

Also, the payment of pensions to bank employees was made from the respective pension fund maintained by all the banks run by pension fund trustees and these were funded on an ongoing basis based on actuarial calculations, which in turn depended on life expectancy and prevailing and expected interest rates.

The demand of the unions/associations for increased contributions to the NPS was based on prevailing low interest rate scenario due to which it was apprehended that not enough corpus would be created for employees at the time of their superannuation to expect reasonable annuity payments.

In addition, the demand for higher contributions to NPS was in sync with the contributions being made by central government to its employees.