“Lies go round the world even before Truth takes one step.”

MY DEAR FRIENDS,

THE ABOVE SAYING APTLY SUITS TO AIBEA'S Gen. Secy. 

AS A PROXY TO IBA, HE CAME OUT OPENLY IN HIS OWN "INIMITABLE STYLE" OF INTERPRETING THE RATE OF YIELD ON THE PENSION CORPUS INVESTMENT DIRECTLY CONTRARY TO THE ACCOUNTING STANDERDS OF ACTURIAL PROJECTIONS AS DEFINED UNDER "THE FUTURE OBLIGATIONS OF THE PRESENT VALUE OF INVESTMENT" BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA.

I CONGRATULATE & THANK COM. KARUNAKARAN, (General Secretary, ARISE -IOB Retirees Association & Working President of AIBPARC) FOR HIS CLARIFCATIONS FOR OUR BENEFIT.

CONTENTS ARE SELF-EXPLICIT:

దేవులపల్లి శ్రీనివాస మూర్తి 

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S.B.C. Karunakaran

Dear Comrades,

The fallacy in this speech has to be understood and we should know about AS-15 standards and comparative standards in India framed ICAI.

There is a thing called present value of Future obligations of Defined benefit liability like Pension .

For instance, if the interest rate is 10% p.a. then, Rs.100 invested in 2023 becomes Rs.110 in 2024. In other words, the future value of Rs.110 in 2024 is equal to the present value of Rs.100 in 2023. That is, if we discount Rs.110 at 9.09% we get 100.

Now the actuaries taking assumptions regarding all variables including life expectancy computes the aggregate monthly future obligations (say from 60 years the age on Retirement to 82 years reportedly the presumed life expectancy) and applying suitable discount rate (which bears relation to interest rate) arrive at the PRESENT value of these obligations. To meet these obligations, pension corpus is created and invested in Plan assets. The FAIR Value of the Plan assets should equal the PRESENT value of the obligations (i.e., monthly Pension for entire life span). Any surplus or deficit in Fair value of assets will be dealt as per procedure laid down in AS 15 standards.

But our Pension Regulations (a subordinate legislation) has stipulated to make good the shortfall in actuarial valuation (of fair value of assets) and has not provided for writing back the surplus in FAIR Value of the assets. How is the FAIR value determined. In simple terms, the comparative yields are reckoned to arrive at FAIR value. For instance, our Plan assets of Rs.100 face value yield 9% p.a., while another bond of Rs.100 face value in the market yields 10%, then fair value of our plan assets will be Rs.90. I have simplified the fair value calculation for easy understanding though many other variables like risk, sovereign guarantee, tenor etc will go into estimating FAIR Value though interest is a major factor.

So, as per accounting standards, the entire corpus of Plan assets at its FAIR value and not the yield on plan assets should equal the future obligations. If a monthly Pension of Re.1 p.m. for next 20 years may be Rs.240 and their Present value at discounted rate should alone be reckoned and matched not with the yield of the Plan assets but at the FAIR value of the Plan assets. According to Mr. CHV, the plan assets will remain intact and the yield should match the monthly Pension outgo. But the Accounting standards do not say so. Even if we go by Mr. CHV’s argument, the Banks will get the whole corpus back when there is no Pensioner alive because only interest on corpus is used to pay Pension and not the corpus itself. The fallacy is because Mr. CHV and his MD (whoever he may be) failed to notice that our Pension Scheme is no more an Open Ended Scheme after the introduction of NPS to recruits since 2010. In an Open Ended Scheme, the wastage (due to death or withdrawal of Pension as penalty etc) is replaced by new Retirees and as on going concern the corpus ( i.e., Plan assets) will be used ever to service Pension as there will always be Pensioners eligible in an ongoing concern. But our Pension has become close ended in 2010. So the Plan assets will revert to Banks, if only yield and not the corpus (plan assets) is used to service monthly Pension.

_When Banks are going to get back the Corpus (in CHVs example) how can Banks rue about the updation cost. It is therefore clear that only because yield alone is reckoned to Service Pension the corpus requirement looks to be huge but if we correctly follow the accounting standards where not merely the yield but the whole FAIR value has to match the obligations the one time Corpus requirement will be much less than projected by Mr. CHV.

Mr. CHV talks of updating even for Pensioners Retired 36 years before in 1986 as if Pensioners are all immortal Markandeya. How many of past Pensioners are alive today? If life expectancy is 82 then for actuarial purpose the corpus requirement of the Pensioners dead and past 82 years is NIL and so also the corpus requirement of Pensioners well past 70 years is near zero and past 60 years will not be heavy.

Let us also note that till we succeed in reckoning Special Allowance for Pension, the updation cost will be insignificant for those retired on or after 2007 and before 1/11/2012 because of the meager load of 2% & 2.5% (in 10th and 11th Bipartite) and for those Retired after 31/10/2012 and before 1/11/2017 because of a still meager load of 2.5%.

And those Retired on Superannuation before 1/11/2007 were 72 plus in 2019 (the year of restoration of updation in RBI) which means for the life expectancy of 82 years, the updating cost is for 10 years and less as on 2019 - this section may get substantial benefit out of updation but for abysmally low number of years while those Retired after 31/10/2007 may get updation for a longer period but abysmally low quantum of benefit.

Hence the Total Pension updating cost is manageable with existing funds or with additions (as one time cost for a long span of years) within the capacity of all Banks.

I have used simplified examples to understand the concept.

IBA does not require a better spokesperson than Mr. CHV. Incidentally, did he make any mention about Regulation 35(1) in his speech? One of his Disciples is going around telling Regulation 35(1) speaks of only updation which is different from Pension REVISION given in Central Govt and RBI. He should listen to his Master talking on updation meaning thereby only Pension Revision.

Comrades, Truth is on our side.

It is said “Lies go round the world even before Truth takes one step.”

That shall not deter us. Truth always triumphs.

Let us match on!

S.B.C. Karunakaran

General Secretary, ARISE (IOB Retirees Association)                  Working President, AIBPARC

President, AIBPARC - TN State Unit

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With the Divine blessings of Matha Kanaka Durga abode इन्द्रकीलाद्रि - विजयवाद Indrakeeladri- Vijayawada, let us hope to bring solace to the grief-stricken hearts of the bank retirees in general and the SUPER SENIORS IN PARTICULAR only in the sole interest of justice & fair play.

 With Greetings & Regards,

 || यतो धर्मस्ततो जयः ||

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