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An Empirical study on the retiral benefits in public sector banking

Submitted to Lovely Professional University

Submitted by: Priyanka sharda, 10903380,RT1903B28 Simran meet kour, 10906633,RT1903B44 Rakesh verma, 10908589, RT1903B77

Supervisor: Dr. Gopal Krishnan. Associate Dean, LIM



This is to certify that the Synopsis titled an empirical study on the retiral benefits in Public sector banks carried out by Mr./Ms._________________, S/o or D/o____________ has been accomplished under my guidance & supervision as a duly registered MBA student of the Lovely Professional University, Phagwara.

His/Her Synopsis represents his original work and is worthy of consideration for making a research project in the next term.

___________________________________ (Name & Signature of the Faculty Advisor) Date:


I, ________________________________, hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a degree program. Any literature, data or works done by others and cited within this synopsis has been given due acknowledgement and listed in the reference section.

_______________________ (Students name & Signature) Date:__________________

History of Indian banks:
Banking in India was defined under Section 5(A) as "any company which transacts banking, business" and the purpose of banking business defined under Section 5(B),"accepting deposits of money from public for the purpose of lending or investing, repayable on demand through cheque/draft or otherwise". In the process of doing the above-mentioned primary functions, they are also permitted to do other types of business referred to as Utility Services for their customers (Banking Regulation Act, 1949). During Britishers' time, three Presidency Banks were opened in Bengal (1809), Bombay (1840) and Madras (1843) with powers to issue Notes. In the year 1921, due to banking crisis during First World War, the three Presidency Banks merged to form Imperial Bank of India. In the year 1955, after Independence, Imperial Bank of India was nationalized and renamed as State Bank of India (SBI) with a primary mandate to go to rural areas by opening at least 400 branches immediately. In the year 1957, the seven banks that were earlier catering to the rulers of different areas or States viz., Patiala, Bikaner, Jaipur, Indore, Saurashtra, Hyderabad, Mysore, Travancore, became subsidiaries of SBI. In 1969 and 1980, Government of India nationalized 14 and 6 major banks respectively. After the merger of New Bank of India with Punjab National Bank during the era of Financial Sector Reforms, the number of PSBs became 27, which are under present study.

The type and nature of businesses handled by the Public Sector Banks have not been merely confined to primary functions. Class Banking was replaced with mass banking primarily by the Public Sector Banks by opening branches in remote parts of the country even without basic amenities of life. Profit was not the motive for these bank branches for about 3 decades.

Their personnel undertook barefoot banking in godforsaken areas and implemented various poverty alleviation schemes as directed by Reserve Bank of India (RBI) or Government of India and Sate Governments concerned. The authorities were confident of delivering credit to the needy masses through the channel of Public Sector Banking in the name of "Priority Sector Advances" combining the subsidy or margin money supported schemes. All these were aimed at generating income or employment to large number of rural masses comprising weaker sections of society, artisans, agriculturists and self-employed persons including educated unemployed youth (Chowdari Prasad, 2002). In India, till the eighties, the banks operated in a protected environment characterized by administered interest rates, high levels of pre-emption in the form of reserve requirements and directed credit. Financial and Banking sector reforms were initiated in India in 1991 against the backdrop of challenges faced by the Indian banks from within and outside the banking system in the country as well as forces of globalization operating worldwide. The accent of the reform process was to improve productivity and efficiency of the financial system and to provide a highly competitive environment. In the present scenario of banking industry, competition among the banks is very severe. The banks have been trying to find new avenues not only to retain the present customer strength but also attracting new customers by offering hassle-free services. In the process, strategies of certain banks, specially Public Sector Banks, are aiming to divide customers into different segments on the basis of the type of service they would like to render and also trying to segregate their servicing counters in their respective branches to enable customer to have easy access to a particular transaction (Srinivasa Rao,K.S. and Rama Rao,U., 1998). On the other side, Foreign Banks and old and new Private Sector Banks in India, have progressed well in the areas of technology up-gradation in operations, extending the business hours, introduction of new products and services like "Any Where Banking", "Any Time Money", "Electronic Fund Transfer", "Electronic Clearing", "Tele-Banking", etc.. These new tools enabled them to improve the quality of service and introduce Value Added Products (Saraf, W.S., 1997). The Indian economy under Liberalization, Privatization and Globalization (LPG) throws mind-boggling process for existence and growth of the sector. WTO was established in 1995

and signing of WTO Agreement by Indian Government meant greater competition from foreign and domestic bankers in terms of speed, sophistication and professionalism. The banks are now expected to maintain transparency in their operational and financial statements. However, in the deregulated virtual market, small banks with high Return On Equity (ROE) will have an edge over the large banks. In fact, modern commercial banks have to be much more agile in order to stay in the competitive market. Adoption of Information Technology is vital for survival and growth of the sector and will fix the future of commercial banks in the LPG economy (S. K. Bose, 2001).

Vision of Banks in India

The banking scenario in India has already gained all the momentum, with the domestic and international banks gathering pace. The focus of all banks in India has shifted their approach to 'cost', determined by revenue minus profit. This means that all the resources should be used efficiently to better the productivity and ensure a win-win situation. To survive in the long run, it is essential to focus on cost saving. Previously, banks focused on the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks shifted their approach to the 'profit' model, which meant that banks aimed at higher profit maximization.

Focus of banks in India

The banking industry is slated for growth in future with a more qualitative rather than quantitative approach. The total assets of all scheduled commercial banks by end-March 2010 is projected to touch Rs 40,90,000 crore. This is going to comprise around 65% of GDP at current market prices as compared to 67% in 2002-03. The bank's assets are estimated to grow at an annual composite rate of growth of 13.4% during the rest of the decade as against 16.7% between 1994-95 and 2002-03.

Barring the asset side, on the liability perspective, there will be huge additions to the capital base and reserves. People will rely more on borrowed funds, pace of deposit growth slowing down side by side. However, advances and investments would not see a healthy growth rate.

Consolidation of Banks in India

Would the banking industry in India get opened up for more international competition? India would see a large number of global banks controlling huge stakes of the banking entities in the country. The overseas banking units would bring along with it capital, technology, and management skills. This would lead to higher competition in the banking frontier and ensure greater efficiency. The FDI norms in the banking sector would give more leverage to the Indian banks.

Thus, a consolidation phase in the banking industry in India is expected in the near future with mergers and acquisitions gathering more pace. One might also see mergers between public sector banks or public sector banks and private banks. Credit cards, insurance are the next best strategic places where alliances can be formed.

Future challenges of Banks in India

The Indian banks are hopeful of becoming a global brand as they are the major source of financial sector revenue and profit growth. The financial services penetration in India continues to be healthy, thus the banking industry is also not far behind. As a result of this, the profit for the Indian banking industry will surely surge ahead. The profit pool of the Indian banking industry is probable to augment from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace would be driven by the chunk of middle class population. The increase in the number of private banks, the domestic credit market of India is estimated to grow from US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050.

The following are the list of Public Sector Banks in India

Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank

IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

Retirement benefits :
A pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay, the former is paid in regular installments, while the latter is paid in one lump sum. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions. Occupational pensions are a form of deferred compensation, usually advantageous to employee and employer for tax reasons. Many pensions also contain an additional insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries. The objective of retirement and pension planning is to first analyze your retirement needs and then to project the estimated future retirement cost through the Retirement Planning Calculator. The most important thing in retirement and pension planning is to financially independent during golden years. There are four steps that can be taking into account for the retirement planning. The first step is when you want to retire means that we need to prepare during working period in what age we want to retire. The second step is how much we need during retirement means that depend to each

individuals lifestyles. The third step is how long we need to spend during retirement. The last step is the inflation factor increase the cost of living.


For a long time banks in India were covered only by the Contributory Provident Fund and Gratuity. A defined benefit pension scheme existed only in the State Bank Of India. The fact that some employees received pension benefits (for example employees in the State Bank of India) and the rest of the employees could never avail this facility became a major topic of concern. There ensued a series of negotiations and settlements between the Indian Banks Association and the Workmens' Union (which comprised mainly of All India Bank Employees Association), which resulted in the introduction of a pension scheme for all banks.

Pension scheme in public sector banks cover both full time employees and part time employees. (Part time employees are those who work for thirteen hours or more per week and have served for at least ten years). The following classes of employees are covered.

Employees joining the bank on or after 1st November, 1993. Employees serving in the banks as on 31st October, 1993. These employees had the option of joining the scheme. In case an employee decided to do so, he had to transfer the bank's total contributions to the provident fund and the interest accrued thereon, to the pension fund.

Employees retiring between 1st January, 1986 and 1st November, 1993. These employees could join the pension scheme by paying back the bank's total

contributions to the provident fund and the interest accrued thereon, along with a simple interest of 6% per annum.

Operational Framework Contributions

Old age income security in banks consists of a contributory provident fund and a defined benefit pension scheme. In case of the contributory provident fund, the bank contributes the same amount as the employee does towards the provident fund. This is 10% of the employee's pay. Pay includes the basic pay including stagnation increments, if any and all allowances counted for the purpose of making contributions to the provident fund and for the dearness allowance. If an employee opted for the pension scheme, the ten percent contribution of the bank which was earlier made to his provident fund was transferred to the pension fund. This applied to all employees working in the banks in 1993 and was compulsory for all new employees recruited after 1993.

There are two kinds of pension benefits- pension available to the employees and family pension for family members after the death of the employee. An employee needs to fulfil certain conditions to be eligible to receive pension. The formula for calculating pension is (half of the average emoluments X number of years of qualifying service)/33. The minimum amount of pension received is Rs.375 per month in case of a member who retired before 1st November, 1993.and Rs.720 per month for those retiring after 1st November, 1993. A dearness relief is granted over and above the basic pension to allow for inflation. Dearness relief is granted on member's pension or family pension or invalid pension or on

compassionate allowance. It is allowed on full basic pension even after commutation (withdrawal of one third of money from the basic pension).

Commutation of pension
The scheme allows a member to take a fraction of monthly pension as a lump-sum after retirement. This is known as commutation of pension. The maximum amount a member can take as a lump sum is 1/3rd of the basic pension admissible to him. A pensioner who has commuted a part of pension, shall receive only the balance of the pension on monthly basis. However the full value of the pension is restored after a period of 15 years from the date of commutation. The commutation is admissible in respect of superannuation pension, voluntary retirement pension, premature retirement pension, invalid pension and compassionate allowance. If a pensioner dies after the commutation has become payable, without receiving the commuted value, it will be paid to his/her nominees. The maximum amount that can be taken as a lump sum is equal to basic pension X 1/3 X 12 X factor as per commutation Table. The factor in the commutation table that is applicable depends on the age of the member on the next birthday. Commutation after one year from the date of retirement can only be sought after medical examination. If the application for commutation is made within one year after the date of retirement, no medical examination is required in cases of superannuation pension, premature retirement pension and pension on voluntary retirement. If application is made after one year of retirement, then it becomes essential to undergo medical examination. However in case of those who are granted invalid pension or compassionate allowance, a medical examination is essential even if one applies for commutation within one year of retirement.

Forfeiture of pension
The cases of dismissal, termination or resignation by an employee from the service would disentitle him from any pension benefit or payment. There could be exception only under the condition where the Service regulations or Service Rules or Settlements entitle such an employee to receive superannuation benefits.


An employee who is deemed to have retired voluntarily from the bank's service under the provisions for voluntary ceasation of employment contained in Bipartite Settlement dated 10th April, 1989, shall entail forfeiture of past service and would not qualify for pension.

Tax benefits
The pension that an employee receives after his retirement is subject to tax. However, the commuted amount upto one third of the pension is tax free.

Every bank has provision for the payment of pension or family pension to the employees or his family. In order to have such a provision, each bank constitutes its own fund, known as the Bank (Employees) Pension Fund. To ensure proper management, this fund is kept under a trust. This Trust has to be constituted within one hundred and twenty days from the notified date. It is important to have sufficient amount in the fund so that the trustees managing the Fund are able to meet the due payments and interests of the pensioners and beneficiaries. The Bank here, plays a vital role in contributing to the Fund. Each Fund (Trust) has books of accounts containing details of all the financial transactions relating to the Fund. The Trust also prepares the financial statements which specify the assets and liabilities. An account of the Financial statement is sent to the Bank on a periodic basis. For investigating into the financial condition of the Fund an actuarial valuation of the fund is carried out every financial year. All money contributed to the Fund has to be deposited in a Post Office Savings Bank Account in India or in a current account with any bank. The contributions are invested as per the notified investment pattern. These investment guidelines are meant for and followed by not only the pension scheme but also by the provident fund scheme. The investment pattern as envisaged in the above categories is achieved by the end of a financial year (that is,31st March of each year)30.

Every Fund is constituted in the form of a Trust. Every Bank is vested with the responsibility of appointing the Trustees who shall comply with the directions of the Bank for the proper

administration and functioning of the Fund. One of the Trustees is the Chairman of the Board Of Trustees and in case the Chairman of the Trust is absent then the acting Chairman another Trustee acting as an alternate Chairman takes the responsibility for Fund management. The pension fund in State Bank Of India, is administered by the Pension, Provident fund and Gratuity Department. The cost of the management of pension fund is borne by the bank itself and not by the trustees.

The pension is paid to the retiree on a monthly basis. There may crop up a situation where the pension is not received in time. In such a case, the retiree can go to the senior authorities of the bank to complain about such a delay. In the State Bank Of India, the retiree(s) can go to the Trustees or Pension, Provident fund and Gratuity Department.

Transfer of job
There might arise a situation where an employee resigns from a bank before rendering or completing minimum number of years of service and joins another bank/service. In such a case, the employee would not be entitled to receive any pension from the former bank as this leads to the forfeiture of this service and hence pension. On the contrary, if he leaves the bank after completing the minimum years of service required for receiving pension and joins another bank or service, he would be entitled to receive the pension benefits from the former bank. In situation where an employee joins any other bank or service then, based on the number of years of service. rendered in the bank / service he joins, he would be entitled to the pension. The services rendered in the past or previous bank is not taken into account unless there is a case of merger of the banks.



To study the various retiral benefits given to the employees in PSU Banks. 1. To study the level of satisfaction in the employees about retiral benefits.
2. To compare the satisfaction level with private sector banks.

REVIEW OF LITERATURE1. The effect of pension plans--particularly traditional DB plans--on turnover has been analyzed extensively in the literature. For example, Lazear (1990) shows that evaluating pension wealth using an option value approach generates the empirical regularity that turnover rates plummet as service length approaches the plan's vesting requirement and then spike following vesting. Instead of examining the relationship between pension plans and years of service, this article focuses on the retirement incentives created by the benefit formulas of traditional DB plans as opposed to the retirement age-neutrality of DC plans. This section first motivates the importance of understanding retirement incentives created by the two main pension plan types by examining the explicit incentives used by college and universities since the end of mandatory retirement. Next, this section reviews the previous literature on pension plan selection by faculty. (Lazear,1990)
2. The study uses the Retirement Confidence Survey of College and University Faculty,

2005, to examine the impact of pension plan incentives on retirement age and to understand how the widespread transition from defined benefit (DB) to defined contribution (DC) plans has affected workers. Incentives stemming from differences in pension wealth accrual patterns between DB and DC plans directly induce up to a one-year difference in expected retirement age and are indirectly responsible for up to

a two-year difference due to workers sorting into plans based on preferences over career length. The results imply that failing to account for worker sorting leads to an overestimation of the transition's effect on the average retirement age of Americans. In addition, the findings suggest that individuals choose retirement plans to diversify retirement income, which has implications for Social Security reform. (Colleen Flaherty, Jul 2010)
3. Mishra & Spreitzer (1998) concluded that strategy of companies attempting to cope

with the changing times. As the turbulence in the market place continuous, organizations continue to face problems of poor productivity, plunging bottom lines, overstaffing or high over heads. In an attempt to counter these exalting problems, VRS has been one of the often used strategies by organizations. Since the early nineties, a large no of Indian. Organizations too, including banks, multinationals, public sector units and private undertakings have started implementing VRS initiatives.
4. Kets and Balazs (1997) have approached retirement from economic imperatives and

market constraints, approaches based on organizational theories, and ideological motivations to social compulsions. He feels that downsizing/upsizing is often a price paid by organizations for previous mismanagement and strategic error in reading the market by the top management. 5. According to Nelson and Burke (1998) Globalization of Market place, technological advances, and growing importance of the service sector coupled with global benchmarking with competitors in terms of overhead costs are some of the market forces that have motivated organizations to resort to downsizing/upsizing. Some organizational benefits expected from this may includes increase in productivity, improved quality, enhanced competitive advantage, potential regeneration of success, lower overheads less bureaucracy, more effective decision making. 6. The New Instititutional Economics carried out a short review of bank failures, etc. according to analytical framework. However, emphasis was laid on discussion of different techniques of bank restructuring used in different countries designed to assist the policy makers and financial sector professionals under different circumstances (Andrew Sheng, 1991).
7. The financial services industry is transforming unpredictably.



Corporation has broadened its product line considerably; State Street Bank & Trust Company narrowed its focus preliminarily to servicing financial assets as an investment manager. Increased competition from non-traditional institutions, new information technologies and declining processing costs, erosion of product and geographic boundaries, and less restrictive governmental regulations etc - all played a role (Dwight B. Crane and Zvi Bodie, 1996).

8. This Ibbotson research paper looks at the outcome of taking a traditional retirement allocation of stocks and bonds, and replacing a portion of the bond

allocation with a variable annuity with a guaranteed minimum withdrawal benefit rider (GMWB). The results of this retirement income research study show that such a strategy could result in a higher lifetime income while reducing the risk that a retiree would run out of money. The strategy works because in each scenario where the GMWB rider is used, the overall allocation to equities is increased. It's increased because the rider allows you to pursue a more aggressive allocation with less exposure to the risk of reduced income due to poor market performance. ( Dana Anspach, jul 2009,).
9. This paper breaks retirement into three phases; active, transitional and passive, and

discusses strategies to align investments with expected spending patterns. Specifically, it looks at the different outcomes from choosing annuities with a level payment, payments that increase at a fixed rate each year, or payments that are indexed to the Consumer Price Index. The results were not what I would have expected. Your initial payout from an indexed annuity was so much lower than the other options that it took quite a long time for it to catch up, meaning it is unlikely it would provide the best result over an average life expectancy. The annuities that has a fixed annual increase of 3% seemed to offer the best outcome.( Simon Fraser,jan,2009).
10. The first conclusion from the research is that Indians are, by and large, doing relatively well in ensuring that they have adequate savings for their retirement. To

reach adequate levels of retirement income, Indians need to contribute sufficiently to their retirement account over their working lives. Investment and longevity risk affect the cost of contributions if the aim is to build up sufficient resources to fund

retirement. Defined benefit plans provide secure retirement income but contribution costs will widely differ according to mortality rates, returns on investment, risk and wage or salary growth.( Jack M. Mintz, dec 18, 2009).
11. There an important form of stealth compensation provided to managers of public

banks. We show how boards have been able to camouflage large amounts of executive compensation through the use of retirement benefits and payments. Our study illustrates the significant role that camouflage and stealth compensation play in the design of compensation arrangements. It also highlights the importance of having information about compensation arrangements not only publicly available but also communicated in a way that is transparent and accessible to outsiders. To improve the transparency of executives' retirement payments and benefits, we propose several changes in current disclosure requirements. Among other things, firms should be required to report to investors each year the dollar value of all the retirement benefits to which their executives become entitled. For example, firms should disclose to investors the annual buildup in the actuarial value of executives' retirement plans, as well as the tax savings reaped by executives at the company's expense through the use of deferred compensation arrangements. Firms should also disclose to investors each year the present value of all the benefits their top executives have accumulated.(Lucian A. Bebchuk, oct, 2009) 12. The concept of early retirement and the considerations that were made in relation to what early retirement means were first found in relation to other relevant information. According to the Pew Research Center, there are a large amount of gaps that occur with those that retire. According to recent surveys within this center, 77% of individuals who retire are still required to work for pay, even after they retire. However, it is also noted through this survey that only 12% of those who are retired are working for pay, while another 27% have worked for pay in the past after retirement, but are not anymore. According to this same survey, early retirement is expected to begin at the age of 61. However, the actual age that is more relevant to retiring early is at 57.8. The relevance of this survey shows that the actual age of retirement for most individuals, as compared to the expectations for what retirement means has a large gap that is not being considered and which individuals are not being educated about. Among the 77% of the currently employed (and not retired) public

who says they expect to do some kind of work for pay after they retire, there is no significant differences by age, gender, income, race, ethnicity, education or origin. In short, this has now become a widely held expectation among virtually all kinds of people.... The expectations that today's workers have about working after retirement are sharply different from the actual experiences of today's retirees (Pew Research, 2006). 13. This shows that the gap between those who are considering retiring, and the events that occur to move them back into the work force, as well as the demographics that are considered, all vary and show gaps, no matter what the field of interest or the background of the individual. With this specific analysis on early retirement are others who are stating the concepts for financial independence and the trends that are pushing individuals into the concept of early retirement, working after retirement and the ages in which the shift in work is occurring. Some are saying that the retirement shift is partially because of the Social Security program going unchanged for the past 63 years, showing that the benefits that are received after one stops working is not congruent to what is needed in order to retire. It is also being predicted that the retirement age and early retirement will continue to stay close to the same age, or will possibly raise, because the benefits will increase and because of financial situations. This is related to the question of whether the retirement age should be increased as adults are living longer because of the health benefits and potentials that are available. The result is that those who are retiring early, also have to consider the types of benefits, the concept of unemployment and the changes that occur in individuals lives because of the development of better health structures and the financial developments that continuously change within the economy (Korczyk, 2004). Both of these literature reviews show that there are sharp contrasts and controversies in defining the retirement age, what early retirement should mean and what the trends are within work areas in helping individuals to move towards retirement. The cultural, economic and social trends will be analyzed in creating an understanding of what early retirement now means to individuals and how it is currently working within the working environment. 1) Venti, Steven F., and David A. Wise. (1994) observed that one of the most controversial aspects of pensions is their impact on private and national savings. It was made clear that

pensions, broadly defined to include social security as well as employer provided plans, comprise a significant component of total household resources. 2) Gale and Sabelhaus (1999) also observed that at the aggregate level, reserves in pension funds have accounted for 20% of net worth in the household sector and represent a sizeable component of private savings. 3) Ferguson and Blackwell (1995), Willette (1995) have stated that in the last two decades there is a paradigm shift in pension fund schemes from defined benefit plans to defined contribution plans such as 401(k) plans. This fundamental shift in the nature of pension saving has concerned observers in the popular press and in academia. Some believe that defined contribution pension plans are a crisis waiting to happen when current generations, having made minimal (or no) contributions to their DC plan, retire with inadequate pension asset balances. 4) Visaria (1998) observed that India is the last major country in the world to experience the demographic transition; a sharp decline in TFRs only commenced in the late 1980s. In 2016, only 8.9% of the population is expected to be above 60; this fraction is expected to rise to 13.3% in 2026. 5) Palacios, Robert and Whitehouse, Edward (1998) have stated that a critical question in the transition to a funded, private pension system is whether the new private element is presented as a mandate or choice to current and future workers. The paper presented by them sets out the spectrum of available options and looks at policy in 13 reforming countries. It concludes that older workers are best excluded from reform, because the economic benefits are small and the political resistance is likely to be large if they are included. However, a defined cut-off age is arbitrary for reasons of intergenerational equity and heterogeneity of portfolio composition and risk preferences within cohorts. A voluntary switch is preferred. The main objection is the resulting uncertainty over the numbers switching. Analysis of reforming countries shows however, a consistent and rational pattern of switching. They concluded by discussing policy options for managing the switching process.
6) Alier and Vittas (1999) observed that there are two aspects where an element of a DB

system is attractive; both pertain to the extent to which exposure to risk factors is adopted. The first issue is the problem of the investment risk that has to be borne by participants in

an individual account system. A DB system may offer a mechanism for risk sharing, thus reducing the risk borne by an individual. The second issue is about decision making in fund management. A DB system is likely to place decisions in the hands of finance professionals, Metamorphosis of Pension Funds in India 19 who would be less likely to avoid risk factors when compared to the decision-making of many individuals. 7) Iglesias and Palacios (1999) in their study stated that Indias experience with the EPF program suggests that simply having defined contributions with an individual account does not suffice in obtaining sound governance. Indias experience is a positive one in the sense that the long-term real return on EPF has not been negative, as compared with some other countries where extreme failures of governance of pension assets have generated sharply negative returns. 8) Shah and Fernandes (1999) suggested that equity investments, especially through index funds are a viable strategy for the pension sector. 9) Walliser (1999) suggested that the illiquidity of pension assets is a constraint, in the eyes of participants in a pension system, in an environment where credit is constrained. For many individuals who are potential participants in a pension system in India, credit markets are inaccessible when exposed to consumption shocks. If the pension system offers no possibility of premature withdrawals, then it becomes relatively unattractive. 10) Shah and Sivakumar (2000) have made a significant study on the relationship between the development of financial markets and the implementation of pension schemes. They observed that the equity market has made major gains in recent years. There is time-series evidence over 21 years suggesting that the equity premium has proved to be around 8 percentage points. There is a modern stock market index (Shah and Thomas 1998) with four index funds. Trading in index derivatives commenced in India in June 2000 and will start in Singapore in August 2000. The market capitalisation of the equity and bond markets are around Rs. 10 trillion each. The stock of assets of the pension sector today is around Rs.1 trillion; hence there is no short-run constraint in terms of the ability of the equity or bond markets to absorb pension investments. 11) Whitehouse (2000), Murthi, Orszag and Orszag (1999) have made a study on the effectiveness of individual accounts without defined benefits. The major issue that was identified was thaty in an individual account system, particularly when contributions or

account balances are small, is the question of administrative overhead and transactions costs.These questions are particularly important in the Indian setting, where the average contribution and the average account balance would be amongst the smallest in the world. 12) Dyson (2002) demonstrated that there are considerable variations among regions and states in fertility rates, life expectancy, and patterns of internal migration. In general, the southern states will experience much more rapid population ageing than the states in the north. The major public policy implication is that pension reform policies and programmes should not be based on the averages for the country as a whole, but on the basis of empirical data of each state. This is particularly relevant in designing defined benefit schemes, whether based on social insurance or provided by employers; and for social assistance programs. 20 RVS Journal of Management Volume 2 No. 1 July 2009 Predicting longevity trends and morbidity patterns is an inexact science. The actuarial assumptions should therefore reflect this, and permit flexibility in design parameters, if the schemes are to be sustainable over a long period.
Research Methodology

Meaning of Research Research is defined as a scientific & systematic search for pertinent information on a specific topic. Research is any original and systematic investigation undertaken in order to increase knowledge and understanding and to establish facts and principles. It comprises the creation of ideas and generation of knowledge that lead to new and substantial improved insights and/or the development of new materials, devices, products and processes. It should have the potential to produce results that are sufficiently relevant to increase knowledge. Good reflective inquiry produces theories and hypotheses and benefits any intellectual attempt to analyze facts and phenomena. This search for individual facts or data requires an open-ended question for which there is no ready answer. Data are gathered through experiments, surveys or other methodologies. Research is an art of scientific investigation. Research is a systemized effort to gain new knowledge. It is a careful inquiry especially through search for new facts in any branch of knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research. This chapter consists of research procedure which has been used to collect the data & information.


Research Methodology Research is a systematic method of finding solutions to problems. It is essentially an investigation, a recording and an analysis of evidence for the purpose of gaining knowledge. According to Clifford woody, research comprises of defining and redefining problem, formulating hypothesis or suggested solutions, collecting, organizing and evaluating data, reaching conclusions, testing conclusions to determine whether they fit the formulated hypothesis Research is composed of two syllables, a prefix re and a verb search.

Re means again, anew, over again. Search means to examine closely and carefully, to test and try, to probe. The two words form a noun to describe a careful and systematic study in some field of knowledge, undertaken to establish facts or principles. Research is an organized and systematic way of finding answers to questions

The methodology used in this research is DESCRIPTIVE. Descriptive Method is used because as it leads to identify needed change, used to reveal summary statistics by showing all possible questionnaire items and also helps in exploring relationships between two or more variables.

Research Design A research is the arrangement of the conditions for the collections and analysis of the data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research is design is the conceptual structure within which research is conducted; it constitutes the blue print of the collection, measurement and analysis of the data. As search the design includes an outline of what the researcher will do from writing the hypothesis and its operational implication to the final analysis of data.


Sample Size For carrying out any research or study on any subject it is very difficult to cover even 10% of the total population. Therefore the sample size has to be decided for a meaningful conclusion. As there was less population, so it was easy to decide the sample size. The sample will be taken as 100 employees.

Sample Population: The sample population includes that sample part which needs to be addressed. The sample population for our project includes the entire PSU banks and defence sector. DATA COLLECTION

For data collection we have used the primary source of data collection. Primary Sources: The primary source of data collection includes data collection through questionnaire. The questionnaire consists of about 6 questions that would be distributed to the employees and the sample elements of the sample unit as well as sample population. The source of data would be: 1) The bank employees 2) Defence employees. The employees being considered are the retired employees who have served their respective organizations.

TOOLS USED: Our research projects needs to put in front the various factors that would influence an retirement benefits and also the various retiral benefits that are being given to them. To learn about all those factors we would be using SPSS and Microsoft excel for the research purpose. SPSS would enable us to know the various factors the retired employees need


Data interpretation and graphic representation:

Data interpretation for banks:

pension i get is adequate Cumulative Frequency Valid strongly agree Agree Total 54 36 90 Percent 60.0 40.0 100.0 Valid Percent 60.0 40.0 100.0 Percent 60.0 100.0


The graphs clearly show that the pensions plan that is being provided by the Banking sector organizations is quite adequate for them. They are satisfied with the pensions that they receive. They strongly agreed to the adequacy of the pensions.

i get medical benefits after retirement Cumulative Frequency Valid Neutral Disagree Total 60 30 90 Percent 66.7 33.3 100.0 Valid Percent 66.7 33.3 100.0 Percent 66.7 100.0


The medical benefits that the organization provides are only for the top level mangers and not for the accounts managers. They get medical allowances only when they are the part of the organization and after they leave the organization they are not given the privilege.

deffered income plan is sufficient Cumulative Frequency Valid strongly agree Agree Neutral Total 60 24 6 90 Percent 66.7 26.7 6.7 100.0 Valid Percent 66.7 26.7 6.7 100.0 Percent 66.7 93.3 100.0


The bank people are quite satisfied with the deferred income plans they receive from the organization. The strongly agree to the amount of income they receive from the organization.

gratuity income is quite sufficient Cumulative Frequency Valid strongly agree agree Total 36 54 90 Percent 40.0 60.0 100.0 Valid Percent 40.0 60.0 100.0 Percent 40.0 100.0


Bank people receive gratuity income and the income they receive is quite adequate. They are satisfied with the amount of income they receive.

retiree insurance plans are being provided Cumulative Frequency Valid agree neutral disagree strongly disagree Total 12 30 42 6 90 Percent 13.3 33.3 46.7 6.7 100.0 Valid Percent 13.3 33.3 46.7 6.7 100.0 Percent 13.3 46.7 93.3 100.0


Banks dont provide their employees with insurance plan. They have to get the insurance plans for themselves. The banks dont provide their ex-employees with the insurance benefits.

travelling allowances are being given by the organization Cumulative Frequency Valid agree neutral disagree strongly disagree Total 6 12 36 36 90 Percent 6.7 13.3 40.0 40.0 100.0 Valid Percent 6.7 13.3 40.0 40.0 100.0 Percent 6.7 20.0 60.0 100.0


Travelling allowance are provided to the existing employees only but the retired employees dont receive any travelling allowances.

organization provide provident fund is adequate Cumulative Frequency Valid 1 2 Total 54 36 90 Percent 60.0 40.0 100.0 Valid Percent 60.0 40.0 100.0 Percent 60.0 100.0


The provident fund provided by the banks to their employees is quite adequate. They are very much satisfied with the provident fund provided to them.


Rotated Component Matrixa Component 1 pension i get is adequate i get medical benefits after retirement deffered income plan is sufficient gratuity income is quite sufficient retiree insurance plans are being provided travelling allowances are being given by the organization organization provide provident fund is adequate .946 .782 .703 -.330 .052 2 -.255 .389 -.600 .683 .737





Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations.

Pension plan: under this heading we have four factors that contribute to maximum to
the satisfaction to the employees. They get adequate pension, medical benefits, deferred income, as well as provident fund. This factor forms the maximum of all the other factors.

Extra benefits: there are two extra benefits that are considered to be very important in
the creating the satisfaction for the bank people. The two factors that form the highest level of satisfaction for the bank people are retiree insurance and travelling allowances.

Data interpretation for army officials:


The army people get both monetary as well as non monetary benefits. So the interpretation for them is given below.

pension i get is adequate Cumulative Frequency Valid strongly agree agree disagree Total 18 48 24 90 Percent 20.0 53.3 26.7 100.0 Valid Percent 20.0 53.3 26.7 100.0 Percent 20.0 73.3 100.0

Army people are very much satisfied with the kind of pensions they receive and all the officials who were encountered agreed to the fact that they have good pensions plans that is being provided to them.


i get medical benefits after retirement Cumulative Frequency Valid strongly agree agree disagree Total 30 48 12 90 Percent 33.3 53.3 13.3 100.0 Valid Percent 33.3 53.3 13.3 100.0 Percent 33.3 86.7 100.0

Army people have medical benefits that is provided to them after retirement.


deffered income plan is sufficient Cumulative Frequency Valid strongly agree agree neutral Total 18 66 6 90 Percent 20.0 73.3 6.7 100.0 Valid Percent 20.0 73.3 6.7 100.0 Percent 20.0 93.3 100.0

gratuity income is quite sufficient Cumulative Frequency Valid strongly agree agree Total 24 66 90 Percent 26.7 73.3 100.0 Valid Percent 26.7 73.3 100.0 Percent 26.7 100.0


The deferred income and the gratuity income for the army people are very satisfying. They are quite satisfied with the income they receive and also agreed to the fact that they are happy with the amount of deferred income and gratuity income they receive.

retiree insurance plans are being provided Cumulative Frequency Valid strongly agree Agree Disagree Total 30 42 18 90 Percent 33.3 46.7 20.0 100.0 Valid Percent 33.3 46.7 20.0 100.0 Percent 33.3 80.0 100.0


organization provide provident fund is adequate Cumulative Frequency Valid strongly agree Agree Disagree strongly disagree Total 12 42 30 6 90 Percent 13.3 46.7 33.3 6.7 100.0 Valid Percent 13.3 46.7 33.3 6.7 100.0 Percent 13.3 60.0 93.3 100.0


The organization is very much dedicated to providing provident fund and is very much adequate for them. The people are very much satisfied with the kind of insurance plans that is being provided to them by the army officials.

travelling allowances are being given by the organization Cumulative Frequency Valid agree neutral disagree strongly disagree Total 6 6 54 24 90 Percent 6.7 6.7 60.0 26.7 100.0 Valid Percent 6.7 6.7 60.0 26.7 100.0 Percent 6.7 13.3 73.3 100.0


The organization is not concerned about travelling of the employees who have been retired from the organization.

I am being provided with old age counseling Cumulative Frequency Valid strongly agree agree disagree strongly disagree Total 6 12 54 18 90 Percent 6.7 13.3 60.0 20.0 100.0 Valid Percent 6.7 13.3 60.0 20.0 100.0 Percent 6.7 20.0 80.0 100.0


Once one has left the army, one is not being provided with the old age counselling. The army officials or the government does not consider it as their responsibility to council the ex-army officials.

my organization provides me with post retirement employement Cumulative Frequency Valid strongly agree disagree strongly disagree Total 12 30 48 90 Percent 13.3 33.3 53.3 100.0 Valid Percent 13.3 33.3 53.3 100.0 Percent 13.3 46.7 100.0


Army people are not at all concerned about the post retirement employment of the employees. They dont counsel them and also dont provide them with the other employment opportunities..
my organization provides jobs to mychildren Cumulative Frequency Valid strongly agree agree disagree Total 30 54 6 90 Percent 33.3 60.0 6.7 100.0 Valid Percent 33.3 60.0 6.7 100.0 Percent 33.3 93.3 100.0


The army officials made it clear to us that the body takes into consideration making one person from their family as employable. They made it clear that they have a room to get their child into the army.

provides shopping option Cumulative Frequency Valid strongly agree agree diasgree strongly disgaree Total 18 48 6 18 90 Percent 20.0 53.3 6.7 20.0 100.0 Valid Percent 20.0 53.3 6.7 20.0 100.0 Percent 20.0 73.3 80.0 100.0


The army people get an option to shop from the army canteen and as such they get shopping options from them.


Rotated Component Matrixa Component 1 pension i get is adequate i get medical benefits after retirement deffered income plan is sufficient gratuity income is quite sufficient retiree insurance plans are being provided travelling allowances are being given by the organization organization provide provident fund is adequate I am being provided with old age counseling i am being provided with old age assistance my organization provides me with the social security my organization provides me with post retirement employement my organization provides jobs to mychildren provides shopping option .778 .622 .739 .424 .081 2 .136 .108 .382 .708 .280 3 .718 -.113 .127 .155 .822




-.387 .019 .003 .140

-.062 .296 -.035 -.522

.720 .233 -.248 -.525




.306 .129

.614 .846

-.079 -.037

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 5 iterations.

After applying rotated matrix component we came across three components that are being explained as below:

Pension plans:

there are two factors that form the pensions plans of the army

personnel. These are: pension, deferred income . These factors form the maximum of all other factors and hence they give the maximum satisfaction to the people of the army.

Extra benefits:

the two dominating factors that form the extra benefits to the

employees of the army are: 1) Shopping options 2) Gratuity income.


Comparison between the army and banks retrial benefits:

Benefits: Monetary Pension Medical benefits satisfied To all the ex-service men satisfied Only provided when part of the organization Insurance plans Travelling allowances satisfying Not given Not given Given when being a part of the organization Provident fund Non monetary More satisfying provided Less satisfying Not provided Army Banks


It was very much clear from the above figures that the retrial benefits given to the employees of army are much better than those of the bank people. In comparison to the bank employees army employees get both the monetary and non monetary benefits. They are very much satisfied with the pensions that they receive and hence are much more satisfied. On contrary to the army people the bank employees have only monetary benefits and they are also satisfied but when compared to the army officials, bank employees are less satisfied then the army officials. The benefits given to the employees of army are far much better than the bank employees. The army people are provided with the shopping options as well as with various other non monetary benefits after the retirement where as the bank people can enjoy those benefits only when they are into the services.


Korczyk, (2004) a research on the retirement benfits and the health insurance of the employees. http://www.oppapers.com/essays/Retirement-Benefits-Authority/132094 [viewed 23-10-2010]. Pew Research, (2006) A research on the retiral benefits that lead to self actualization by the employees. .http://www.itchybrainscentral.com/earlyretirement-statistics-research.html [viewed 23-10-2010].

Dana Anspach( jul 2009) Retirement portfolio and variable annuity with guaranteed mininmum withdrawal (jan,2009) retirement benefits income ( making the VA+GMWB) right choices. http://www.mrrc.isr.umich.edu/publications/papers/. [ viewed 23-10-2010]



http://www.academon.com/Research-Paper-Retirement-Plans/29851 [viewed 23-10-2010]

Jack M. Mintz, (dec 18, 2009) Retirement solutions for the employees.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=583861 [viewed 2310-2010]

Books and journals:

Milevsky, Moshe The Calculus of Retirement Income, 2006, Cambridge University Press. 47

Chen, Peng, Roger G. Ibbotson, Moshe A. Milevsky, and Ken X. Zhu. 2007. Lifetime Financial Advice. CFA Institute Research Foundation