Seeking Guidance on Introducing Superannuation Policy: Calculations, Benefits, and Eligibility?

Respected seniors, this is Ramu working as a Junior Manager-HR in a manufacturing unit at Vijayawada. We would like to introduce a superannuation policy in our company. I request the seniors, can anyone guide me about calculations, benefits, and eligibility norms?

With regards,
Ramu

Dear Mr. Ramu-HR,

Understanding Superannuation and Gratuity

The employee who attains the age of retirement is generally referred to as being in Superannuation. A Superannuation Fund is a method designed to provide a certain amount for your retirement. Mostly, schemes from LIC and other private insurance companies are tied up with the employer to make your savings more effective and are considered tax-free in the contributions made. Superannuation paid to you is 15% of the basic and should not exceed 27% when combined with PF under the Income Tax Act.

Gratuity Benefits

Gratuity is one such benefit paid to the employee after performing continuous service for 5 years with the same employer. Gratuity is made a compulsory statutory benefit provision under The Payment of Gratuity Act. It is paid within 15 days of each year completed. Gratuity is calculated at 4.81% of the basic.

It can be calculated as follows:

Gratuity Amount = Basic salary (last drawn) / 26 days x 15 days x Number of years of service

All forms and formats related to superannuation will be available with the HR. The payment will be received after submitting the requisite forms within a maximum of 45 days.

Regards,

The Superannuation Scheme is implemented by the company to provide monthly pension benefits to its employees upon retirement. Under the Income Tax Law, a company can contribute up to a maximum of 27% of the Basic Wages/Salaries for employee benefit schemes such as Provident Fund/Superannuation Schemes. It can invest up to a maximum of 12% in the Provident Fund Scheme (which is contributory) and the remaining 15% in the Superannuation Scheme (which is non-contributory).

Methods of Calculating Benefits

The Superannuation Scheme offers two methods of calculating benefits for employees. One method is to determine the amount of pension benefits in advance (defined benefit scheme), while the other is to contribute at a fixed percentage periodically (defined contribution scheme). The pension benefits are determined based on the accumulated credit balance of the member at the time of Superannuation (retirement).

Dear Mr. Ramu,

Implementation of SAS and NPS Considerations

For the implementation of SAS, there is a need to establish trust and rules and regulations for the administration of the scheme. Before tying up with any company, please check their return/performance record. We are tied up with ICICI PRU Life, which gives us an average 8-9% earning per annum.

National Pension Scheme (NPS) Overview

The government has launched the National Pension Scheme (NPS) with effect from 1/4/2004 for governmental employees. Any employee, private or government, can join this scheme, but it is mandatory for governmental employees who joined after 1/4/2004. Under the SAS, only employees' contributions are eligible for tax deductions under section 80C. However, under the NPS, both contributions are eligible for tax exemption under section 80CCD(2), subject to a maximum of 10% of the basic pay. The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Current Status and Recommendations

The PFRDA has announced a scheme for private/corporate employees. New member enrollment under SAS has been stopped by IRDA. So, if you are considering starting a new SAS, you cannot do that. Please check with IRDA. For more details on NPS, you may visit www.iciciprulifepensionfund.com.

Regards,
NK Panchal

I appreciate your concern for the welfare of your employees. I'm not sure how many employees you have to cover under your SAS. I trust EPF is already implemented for your employees. What is left to be covered:

1. Gratuity
2. Pension - (If they are PF members, EPS would also apply)
3. Insurance - Medical, Life, and Accident
4. Bonus, if eligible
5. Leave encashment
6. Employees' Death and Welfare Fund
7. Parting gift, if any.

I am not sure whether you have already made a decision regarding the age for superannuation - there are different ages in vogue like 55 yrs, 58, 60, etc. This is left to your discretion.

Regarding EPF and Gratuity

If your firm is legally eligible, you can set up trust(s) and manage them by employees' committees, which can quicken the process of governing and settlements for the retiring employees. This is due to operational difficulties faced when settlement claims are unduly delayed by various agencies like LIC. You may consider various aspects for this purpose.

Regards,
Kumar S.