Understanding Superannuation vs. Gratuity: Can You Help Clarify the Differences?

Hello all,

Can somebody help me with the difference between Superannuation and Gratuity?

Thanks,
Alin

Hi Alin, according to my knowledge, this is the difference between superannuation and gratuity.

Superannuation

Pension

Superannuation in Australia

Retirement

Obsolescence

A pension is a steady income given to a person (usually after retirement). Pensions are typically payments made in the form of a guaranteed annuity to a retired or disabled employee. Some retirement plans (or superannuation) designs accumulate a cash balance (through a variety of mechanisms) that a retiree can draw upon at retirement, rather than promising annuity payments. These are often also called pensions. In either case, 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 employees and employers for tax reasons. Many pensions also contain an insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries, while annuity income insures against the risk of longevity.

While other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of payments, the common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal and/or contractual terms.

Gratuity

N 1: a relatively small amount of money given for services rendered (as by a waiter) [syn: tip, pourboire, baksheesh, bakshish, bakshis, backsheesh]

2: an award (as for meritorious service) given without claim or obligation

Superannuation is 15% of basic salary, and gratuity is 4.81% of the basic salary. Superannuation can be optional (you can opt to include it in your take-home salary as a special allowance, which will be taxable), while gratuity is mandatory. Superannuation can be claimed whenever you leave the company, whereas gratuity can only be claimed after completing 5 years of service.

Gunjan

Hi,

Both terms have different meanings and are used differently, and therefore should not be confused with each other.

In India, superannuation is a perquisite extended to employees in various companies as a part of employment conditions, generally to the management staff more for retention purposes. It had more significance some years ago as it entailed a retiral benefit on attaining the age of superannuation - say 58 years, as companies in the private sector do not have pension schemes, unlike Government Sector companies.

Superannuation started gaining significance as many multinational companies offered this perquisite, which even allows a deduction of up to 15% of the basic and, in combination with PF, should not exceed 27% as per the existing rules under the Income Tax provisions.

Superannuation can be provided through LIC or many other private insurance companies, and a number of options may be chosen from the scheme by employees who are members at the time of leaving the company.

On the other hand, gratuity is compulsory under the provisions of The Payment of Gratuity Act after an employee completes 5 years of service with the company. Gratuity becomes payable only after the completion of 5 years.

I hope these inputs will be of some help and provide clarity.

Regards,

Rajpal

As per the Indian Accounting Standard 15 or AS 15 (Rev.):
1. Superannuation is a defined contribution plan.
2. Gratuity is a defined benefit plan.

Superannuation is an employee's contribution, while gratuity is an employer's contribution.

An employee can withdraw 1/3 of the Superannuation Fund as tax-free income, and with the rest of 2/3, he has to buy an annuity plan (pension plan). On the other hand, 100% of the Gratuity amount is income tax-free and can be received in one go.

Superannuation is not a statute, whereas Gratuity is a statute.

Superannuation can be withdrawn at any time (leaving the company or retiring), while Gratuity can be received only when you complete 5 years of continuous service.

Cheers!

Dear Rajpal,

We really appreciate your accurate answer to this specific post. We would also like to request members to enhance their knowledge before responding to questions, as it may confuse the questioner.

Thank you.

Dear Deepak,

I just saw your post after six months. Could you please elaborate on the proverb or quotation that you used? I find it quite interesting and would like to know more in depth.

May I have the eligibility criteria and computing method of Superannuation in India? Can somebody help me with this?

Thanks,
Kumar G