Hi all,
The following write-up on superannuation from a leading insurance company would be useful to all of you, I hope.
Best regards,
Niranjan R
Group Superannuation Scheme
An organization today not only has to fill various positions with competent and trained personnel but also has to create an environment where they can give their best, derive a sense of well-being, fulfillment, security, and take pride in their continued association with the organization. The provision of a pension may be an attraction for individuals to continue in the organization and contribute their best, as with the continuous improvement in longevity, a regular income even after retirement has become a necessity. To provide pension benefits to employees, an employer has two alternatives under the provisions of Rule 89 of the Income Tax Rules 1962.
1. Create a privately managed trust fund and purchase annuity from an insurance company to provide a pension for retiring members.
2. Entrust the management of the Pension Fund to an insurer by purchasing its Group Superannuation Scheme.
ADVANTAGES OF THE MANAGED PENSION FUND:
Group Insurance in conjunction with the Group Superannuation Scheme can be taken by an organization to provide an attractive lump sum payment on the unfortunate death of a member while in service at a very nominal cost.
The employer contributes a certain fixed percentage of the salary of each member. These contributions are accumulated by the fund manager, and the accumulated amount is utilized to provide various benefits as mentioned below.
BENEFITS:
1. ON RETIREMENT:
Upon retirement of a member, the corpus (contributions plus interest) is utilized to provide the pension as per their choice.
2. ON DEATH:
The pension is payable based on the life of the beneficiary. The corpus is utilized towards the payment of the pension type the beneficiary may opt for, and the benefit received is tax-free. A lump sum is payable by way of death, besides the pension, if the employer has taken the Group Insurance Scheme in conjunction with the Group Superannuation Scheme.
3. ON WITHDRAWAL:
The member can transfer the equitable interest to the Superannuation Scheme of the new employer or opt for immediate or deferred pension.
PENSION OPTIONS:
- Life Pension ceasing at death.
- Life Pension with Return of Capital and Group Pension Terminal Bonus on death.
- Life Pension guaranteed for 5, 10, 15, or 20 years and life thereafter.
- Joint Life Pension payable on the last survivor of the employee and spouse.
- Joint Life Pension payable to the last survivor of the employee and spouse with the return of capital on the death of the last survivor. If desired, 1/3rd of the pension can be commuted at vesting.
ELIGIBILITY CONDITION:
It is not obligatory or statutory for the employer to provide a pension to all employees. It is entirely up to the employer to decide which class/classes of employees to extend the scheme to. The eligibility conditions may be defined based on designation or salary. However, after the categories are specified, the employer cannot discriminate between employees and must extend the scheme uniformly.
CONTRIBUTION:
The maximum annual contribution that an employer can make to the Pension Fund and Provident Fund is restricted by the Income Tax Provisions to 27% of the annual salary (basic plus D.A.). The annual contributions are treated as deductible business expenses.
WHO PAYS CONTRIBUTION?
Mostly, the employer contributes, but if desired, both the employer and the employees may contribute, in which case the scheme is called a Contributory Pension Fund Scheme.
TAX BENEFITS:
The provisions relating to the approved Superannuation Scheme are set out in Part 'B' of the Fourth Scheme of the Income-Tax Act, 1961, and Part XIII of the Income Tax Rules, 1962. The income tax concession will be available only if the scheme is approved by the CIT.
The annual contribution is treated as a deductible business expense in terms of Section 36(1)(iv) of the I.T. Act.
In terms of a Notification issued by the Central Board of Direct Taxes, 80% of the contributions towards the past service liability are treated as deductible business expenses spread over the subsequent years of payment.
The employee's contribution, in the case of the Contributions scheme, qualifies for exemption under Section 80C of the Income-Tax Act.
GROUP INSURANCE SCHEME IN CONJUNCTION WITH SUPERANNUATION SCHEME:
The members of the Group Superannuation scheme can be covered under Group Insurance in conjunction with a superannuation scheme to provide death risk cover while in service, subject to certain conditions.