How red tape is costing public sector bank employees crores in NPS savings

However, SBI Pension Funds has delivered the least returns among the 11 pension fund managers under the National Pension System (NPS), a government-sponsored, market-linked retirement savings scheme, across time periods. 

The fund registered a compound annual growth rate (CAGR) of 2.09%, 13.34%, 19.78%, and 11.88% over the past 1, 3, 5, and 10 years, respectively (as of 9 May).

In comparison, DSP Pension Fund Managers Pvt. Ltd delivered the highest returns of 19.28% for the one-year period, followed by Kotak Mahindra Pension Fund Ltd at 9.68%, and UTI Pension Fund Ltd at 8.63%.

For the three-year period, UTI, ICICI Prudential Pension Fund Management Co. Ltd, and Kotak delivered higher returns at 24.13%, 24.01%, and 23.95%, respectively.

Similarly, for the five-year period, HDFC Pension Fund Management Ltd recorded 13.18%, UTI 13.14%, and Kotak 13.11% CAGR.

This has hit State Bank of India’s (SBI) own employees the hardest as they had to settle for SBI Pension Funds’ default scheme, which caps equity/equity-related instruments at 15%. Employees of seven other state-run banks are also required to park their retirement savings with SBI Pension Funds. 

There are approximately 530,000 public sector bank (PSB) employees enrolled in the NPS.

Why did this happen?

PSBs adopted the NPS in 2010 and stuck to the NPS central government pattern, allowing investments through one of the three pension funds run by pubic sector undertakings: LIC Pension Fund Ltd, SBI Pension Funds Pvt. Ltd, and UTI Retirement Solutions Ltd.

However, on 14 November 2018, the Pension Fund Regulatory and Development Authority gave central government employees the option of choosing from any of the 11 pension funds in the NPS. Later, the finance ministry’s 31 January 2019 notification allowed the central government subscribers to have the option of selecting pension funds and investment patterns in their tier-I account from 1 April 2019.

Tier-1 accounts restrict withdrawals till the age of 60, while tier-2 accounts are a voluntary add-on, giving people much more flexibility when it comes to withdrawals.

Initially, the Indian Banks’ Association (IBA) did not follow suit. However, in 2024, it left the decision with the PSBs.

Consequently, four of the 12 PSBs in the country—Bank of India, Indian Bank, Indian Overseas Bank, and Union Bank of India—allowed their employees to choose any pension fund manager and investment option.

PSBs are technically part of the NPS corporate sector. In this plan, the pension regulator has allowed employees to choose their own pension fund manager after one year and also their own individual asset allocation.

However, the PFRDA exempted organisations that joined the NPS before 2017 from this rule.

As a result, SBI and the other seven PSBs continue to follow the old regime.

Why do employees feel short-changed?

“Currently, I am constrained to a default investment pattern in government securities, which offers minimum equity exposure. Moreover, I have only one pension fund manager, SBI Pension Funds, with no option to switch,” a Bank of Baroda employee told Mint.

“My current annual return under the default government scheme allocation is only 9.17%. In contrast, peers employed with the central and state governments, insurance companies, and regulatory bodies have achieved returns exceeding 14% as they opted for high equity exposure,” this person added, speaking on condition of anonymity.

Even with conservative estimates of 12% annual equity returns, the employee pointed out, the long-term impact could amount to a retirement corpus shortfall of several crores. “This denial of flexibility directly undermines our ability to grow our retirement savings in line with market opportunities and personal financial goals,” the Bank of Baroda employee added.

While employees have made multiple representations over the years, there has been little progress. The employee noted that Bank of Baroda acknowledged the receipt of clarification from the IBA and the PFRDA on 6 December 2024. Yet, no action has followed since.

However, not all PSBs are lagging. “Bank of India has already allowed employees the option to choose a pension fund manager and asset class allocation. This proves that it is operationally feasible and highlights the lack of initiative in other banks,” the Bank of Baroda employee added.

Mint‘s emails to SBI and Bank of Baroda went unanswered.

The fairness question

The financial and strategic consequences of this inaction could be far-reaching. 

“Employees are being denied the opportunity to align their retirement planning with their risk appetite. The delay also goes against the very spirit of the finance ministry’s January 2019 directive,” said a senior pension fund executive on the condition of anonymity. “It is not just a policy issue anymore—it’s a question of fairness and future financial security.”

There is cautious optimism among pension fund insiders that change is inevitable. Regulatory pressure from the PFRDA and growing awareness among employees are expected to gradually shift the tide. “Bottom-up pressure is the only way this will change. The employees need to demand it, and the regulators must keep the heat on,” the executive added.