Superannuation Fund: Meaning, Types and How It Works?

Which types of perks and benefits do you anticipate to receive if you are hired by a firm? Employees like to receive everything offered by employers. Employee perks and benefits differ from company to company. While a few companies provide both monetary and non-monetary benefits, others just offer non-monetary benefits. Incentives are an ideal example of monetary benefits. Non-monetary benefits may be awards and recognition. Did you hear about superannuation funds? What are they?

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What is Superannuation Fund?

Superannuation fund benefit is one of the benefits provided by an employer. Many a times employees ignore this benefit as they do not contribute anything towards superannuation fund benefit. Commonly, superannuation is an element of cost to a company (CTC) and therefore, it brings down the take-home salary. Sometimes, employers make it non-compulsory for employees. When employees do not prefer superannuation fund benefit, then they may ask for this amount separately. At the beginning of the job, employees should decide whether or not to exercise superannuation fund benefit.

See Also: Best Pension Plans In India

Salient Features of Superannuation Fund Benefit                                 

• There are two categories in superannuation fund benefits. They include defined benefit and defined contribution.
• In case of defined benefit, retirements benefits are already known to employees and they are fixed. Under defined contribution, the contributions of an employer are only known, but the retirement benefits aren’t guaranteed.
• If the employee resigns the job, he or she can transfer this amount to the new employer. If the new employer does not have superannuation fund benefit, the money can be withdrawn.

Superannuation Benefits in India

Some of the ongoing superannuation benefits have been listed below:

Plans for Generating Pension Post-Retirement

• Monthly income plans
• Life annuities

Plans for Accounting Retirement Savings

• Atal Pension Yojana
• Public provident fund
• National pension scheme

The common annuity options available are payable jointly on the life of the husband and the wife, payable for life, payable for life with a return of capital and payable for life guaranteed for 5 years, 10 years and 15 years.

See Also: Pension Funds In India - Types of Pension funds

Superannuation ACT India

It was proposed by the Pension Fund Regulatory and Development Authority three years ago that it would bring unregulated pension funds under its realm. Unregulated pension plans are nothing but superannuation funds. While employers provide superannuation funds, private trusts manage them. Such funds are not illegal since they follow Income Tax Laws with respect to the investments and information of the trust.

Some multinational companies (MNCs) and manufacturing companies used to provide superannuation fund benefits, which became unpopular when the Fringe Benefit Tax was created. Superannuation funds may also be either trusts managed by life insurance companies or self-managed trusts.

The employer gets a consolidated statement from the insurance company when they are insurance managed trusts. In case of self-managed trusts, annual statements are required to be given by trustees. It may not be a big issue if superannuation funds are not regulated as the income tax rules govern them. But, these funds should be governed by the Pension Fund Regulatory and Development Authority (PFRDA), which is the pension regulator in India. The Government of India established the PFRDA on 23 August 2003.

Types of Superannuation Funds

1. The main types of superannuation funds include employer or corporate funds, industry trends, retail funds, personal funds and self-managed super funds.
2. Corporate or corporate funds are the specific funds created by employers for their employees. These are the most commonly used funds today.
3. Personal funds are a type of fund wherein a person personally joins via a superannuation provider.
4. Industry trends are specifically designed to meet the requirements of people working in a particular sector or industry.
5. Banks or investment companies run retail funds, which have no restrictions on who may join. Retail funds will have a huge number of investment choices.

How Does Superannuation Work?

The companies need to open the superannuation benefit fund first with any of the authenticated agencies such as Life Insurance Corporation of India (LOC), ICICI Bank Limited or others. After opening the funds, the employers start contributing towards the funds on behalf of their employees. There are no specific contributions from employees such as EPFs. Like mentioned earlier, the employee who quits the job has an option to withdraw the money or continue with the new employer if applicable.

If sources are to be believed, the computation of the superannuation fund goes as below:

1. Lower than 1 year: Nothing 
2. 1-2 years of service: 50% of the contribution plus the interest received from the fund
3. 2-3 years of service: 75% of the contribution plus the interest received from the fund.
4. 3 plus years of service: 100% of the contribution plus the interest received from the fund.

See Also: Types of Retirement Plans

Superannuation vs Pension

Both pension and superannuation funds are basically pension arrangements designed to help employees financially. Anybody can invest in pension funds. There are many pension schemes available today. For example, national pension schemes are the pension schemes introduced by the Government of India. If you choose these schemes, your money shall be invested in the debt and equity markets. On the contrary, superannuation funds are provided only by employers.

Superannuation Fund Income Tax Benefits 

For the financial year 2018-2019, the contribution of an employee to the group superannuation fund was exempted from tax up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. The contribution of an employer to the group superannuation fund was exempted from tax up to Rs.1 lakh.   

Conclusion

Financial experts suggest employees to opt for superannuation funds if available. This will help them save some money for retirement. If there are no such facilities available, perhaps, pension funds will serve the purpose. The bottom line is that each employee should understand the relevance of retirement planning and start saving money for that.

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