Special features of Group Insurance/Super Annuation Schemes

A superannuation scheme ensures that an employee continue to receive a regular stream of income even after his/her retirement. By investing in a Superannuation scheme, you can ensure that you’ve a pool of funds ready to pay this benefit to your employees.

Most employers provide various retirement benefits to their employees either due to a statutory mandate or voluntarily to retain employees for a longer period. Such retirement benefits include provident fund, gratuity, National Pension System etc. Superannuation benefit is one such retirement benefit offered to employees by their employers.

• Helps in creating a separate pool of funds for employees
• Safeguards your working capital against bulk retirement pay-outs
• Provides tax benefits to employees as well as employers

Many times, employees ignore this retirement benefit. In fact, many, may not even know that they have been provided with superannuation benefit as the contribution to the benefit does not go out of their pocket. Some may also be unaware of the superannuation amount they are entitled to at retirement. Given this, it becomes imperative to understand what the superannuation benefit is in order to help individuals have better financial planning and plan retirement efficiently.

Types of Superannuation benefit

Superannuation benefit is classified into the following in India based on the investment and benefit it offers: 

Defined contribution plans: This superannuation benefit is opposite to defined benefit plan. While in case of a defined benefit plan, the benefit is fixed and pre-determined, defined contribution plan has a fixed contribution and benefit is directly correlated with the contribution and market forces. This type of benefit is better to manage and the risk is with the employee as he does not know how much he will receive at retirement.

Defined benefit plans: The benefit derived is already fixed irrespective of contribution to the plan. The pre-determined benefit is based on various factors such as a number of years of service in the organisation, salary, age at which employee starts reaping the benefit. This is comparatively complex and risk of generating such benefit lies on employer. Upon retirement, an eligible employee receives a fixed amount which is determined by the pre-existing formula, at regular intervals.