Group Superannuation Scheme

> The Benefits of Group Superannuation Scheme
> Quick Guide to Group Superannuation Scheme
> Frequently Asked Questions
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The Benefits of Group Superannuation Scheme

Better Returns

Under Group Superannuation scheme, the funds are invested scientifically and meticulously. Your funds are a well-researched mix of equity and debt. Since your fund is invested wisely, you are likely to get better investment returns. This will ultimately contribute to your employee’s long term financial goal or savings for their retirement years. Group Superannuation schemes are always fruitful in the long run.

Annuity Option

Pension plans for the employees, under Group Superannuation scheme, help in taking care of their retirements. Also, Group Superannuation plans allow multiple payout options yearly, half yearly, monthly, or quarterly. You can also buy annuities that return the premium to nominees in case of death, amounts are guaranteed for as long as you live or even options to increase in annuity benefit each year.

Nominal Cost

Superannuation scheme has the advantage of extending benefits to employees at a nominal cost. Employees can have a sizable corpus without you bearing a significant and hefty cost. The primary benefit is that a superannuation scheme encourages all the employees to save each month. This is a discipline that can result in large retirement savings for them - something that your employees will be grateful for.

Tax benefit

The employer’s contribution is treated as a business expense which reduces your tax incidence. Employees also benefit because the fund is not treated as a perquisite for the employee, which is tax efficient. Moreover, the contribution by the employee towards this policy is eligible for deduction under section 80C. Also, the benefits payable on death and the amount accumulated on maturity are exempt from tax.

Quick Guide to Group Superannuation Scheme

Retirement planning is an important aspect of financial security, and a group superannuation scheme is a powerful tool that can help both employers and employees achieve their retirement goals.

By offering a group superannuation plan, employers can attract and retain top talent, while employees can enjoy tax-efficient savings and the peace of mind that comes with knowing they are planning for their retirement.

Whether you're an employer looking to enhance your employee benefits package or an employee planning for your retirement, a group superannuation scheme can provide numerous benefits.

Join us as we explore the world of group superannuation schemes, from understanding how they work to their benefits and considerations, and discover tax provisions on scheme for both employers and employees.

What Is Group Superannuation Scheme?

A group superannuation scheme is a retirement plan sponsored by an employer that allows employees to contribute a portion of their income to a fund that is managed by a professional fund manager.

The employer may also make contributions to the plan on behalf of their employees. The contributions made to the scheme are invested in a range of assets such as stocks, bonds, and other securities, and the fund is designed to grow over time to provide retirement benefits to the employees.

Group superannuation schemes offer several advantages over individual retirement plans, such as lower fees, more significant investment options, and the ability to leverage group buying power to negotiate better investment terms.

These schemes are becoming increasingly popular as employers recognize the importance of providing retirement benefits to their employees as part of their employee benefits package.

Tax Provisions On Group Superannuation Scheme

Group superannuation schemes offer tax advantages to both employers and employees, making them a popular option for retirement planning. Here are some of the tax provisions related to group superannuation policy:

Tax-Deductible Contributions : Employers can claim tax deductions on contributions made to the scheme on behalf of their employees, up to certain limits. This can help reduce the employer's tax liability and lower the overall cost of providing retirement benefits.
Tax-Exempt Investment Earnings : The investment earnings generated by the scheme are typically tax-exempt, providing a significant advantage over other investment vehicles. This means that the contributions made to the scheme and the earnings generated from those contributions are not taxed until the funds are withdrawn.
Concessional Contributions : Employees can make additional contributions to the scheme through salary sacrifice arrangements, which are taxed at a concessional rate of 15% instead of their marginal tax rate. This can provide a tax-efficient way for employees to boost their retirement savings.
Low Tax Rates On Withdrawals : When employees reach retirement age and start making withdrawals from the scheme, they are typically taxed at a lower rate than their marginal tax rate. This can help maximize their retirement income and reduce their tax liability.

Advantages of Group Superannuation Scheme

For employees :

Voluntary contribution towards a group superannuation scheme is eligible for tax deductions up to a maximum limit of ₹1.5 lakhs, in a financial year, under Section 80C
Death benefit under superannuation fund is tax-free
Interest earned for your superannuation fund is tax-free
After retirement, you can withdraw one-third of the fund accumulated under your superannuation account without having to pay any tax

For employers :

Contribution made by the employer towards the employees’ superannuation fund is considered as tax deductible by the Income Tax Department.
The income generated by trusts which are self-managed of an approved superannuation fund is exempted from tax.

Functioning of Group Superannuation Plan

The organization contributes towards the group superannuation fund created for the employees:

The employer can either manage the superannuation fund by their own trusts or open a superannuation benefit fund with any of the approved insurance companies or buy a superannuation product from an insurance company
The employer contributes a fixed percentage of up to a maximum of 15% of employees’ basic pay and dearness allowance towards an employee’s superannuation fund. Though contribution is made by employer, ideally superannuation is part of Cost to Company (CTC)
An employee may also opt to contribute towards their superannuation fund based on the clause in the chosen plan. At the time of retirement, the employee will be eligible to withdraw 1/3rd of the accumulated value and the rest will be credited as regular pension in defined or chosen intervals.
Superannuation funds are transferable and the employee can choose to transfer the funds towards the new employer’s superannuation scheme when changing jobs. If the new employer does not have a superannuation scheme, the employee can choose to withdraw the amount or retain it in the fund for retirement.

Eligibility for Group Superannuation Scheme

Eligibility for group superannuation scheme is determined by certain criteria, including the following:

The minimum age of entry for a group superannuation scheme is 18 years
The maximum age of age of entry is 75 years
The maximum age at maturity of the superannuation scheme can be 85 years
The minimum group size for a new employer-employee superannuation scheme is 10
The is no limit for the maximum value of a group size

Types of Group Superannuation Scheme available

In India, superannuation plans come mainly in two types:

For accumulating retirement savings
For generating pensions after retirement

The common annuity options that are available are:

Annuity payable for life
Annuity payable for 5years/10years/15years life guaranteed
Annuity payable for life with a capital return
Annuity payable jointly on the life of husband and wife

Claim process for Group Superannuation Scheme

Superannuation pension plan is a fund managed by the employer. The claims or transfers of these funds can only be made under the scenarios mentioned below:

If the employee dies during their service - The nominee of the employee receives the accumulated fund
If the employee changes their job – The employee can:
a. Choose to transfer the accumulated fund to the new employer, if the new employer has a superannuation fund
b. Continue using the same fund for accumulation of wealth till they retire
c. Withdraw 1/3rd of the accumulated wealth and get the rest of the amount as pension on retirement
If the employee discontinues working or retires - They can choose to withdraw 1/3rd of the accumulated wealth and get the rest of the amount as pension on retirement

Documents required for Group Superannuation Scheme

Documents submitted for claims under group superannuation scheme differ by type of claim, the insurance company and the type of scheme taken. Below are a few general documents that are required to claim for a group superannuation scheme:

A duly filed and signed claim form, as prescribed by the insurance company
Original policy document
NEFT mandate for the claimant for direct transfer of money to the account
Proof of identity of claimant
In case of death of the insured – death certificate has to be produced by the claimant

Conclusion

Group superannuation plans are a cost-effective and tax-efficient retirement planning option that benefits both employers and employees. The scheme provides a wide range of investment options and lower administrative costs, and employers can use it to attract and retain top talent.

While it's essential to consult with a financial advisor or tax professional to ensure the scheme aligns with your retirement goals and financial situation, group superannuation schemes are a popular and effective tool for achieving long-term financial security.

Frequently Asked Questions

A group superannuation policy ensures that employees receive a pension or a regular stream of income after their retirement. It is basically a pension program declared by an organization for the future and long-term benefit of its employees. The accumulated fund is paid to the employee after his/her retirement from their service till his/her death.

An employee making a voluntary contribution towards a superannuation scheme is entitled for tax benefits up to a maximum of ₹1.5 lakhs under Section 80C. Similarly, contribution made by employers towards their employee superannuation fund is tax deductible as per Income Tax Department of India. Pension received would be taxable as per the regular income slab.

No. It is entirely up to the discretion of the employer to offer a superannuation scheme to their employee. Employers offer such schemes under employee welfare programs. It is a potent tool for employee retention as well as for attracting new resources to the company. Companies do have some mandatory provident fund requirements depending upon the size of the company and employee salaries.

A subscriber, under a superannuation scheme, can claim 100% withdrawal of the accumulated corpus if the accumulated value is less than or equal to 5 lakhs at the time of attaining the age of 60 years (time of superannuation).

An employee become eligible to withdraw their fund accumulated under a superannuation scheme in below conditions:",

If the employee dies – The nominee receives the accumulated fund

If the employee retires – They can withdraw 1/3rd of the accumulated wealth and rest will be provided as regular pension in specified intervals

If the employee changes the organization – They can transfer the accumulated superannuation fund into the new employer’s scheme or choose to withdraw the whole amount if the new employer does not have a superannuation scheme

The types of annuity options available in India are:,

Immediate Annuity – This is a type of annuity wherein the premium is paid lump sum and not periodically. But return is guaranteed and is paid at regular intervals.

Deferred Annuity – Here, an individual is first required to build a corpus. This corpus will then be used to purchase annuity at the time of retirement.

Fixed Annuity – A fixed annuity allows an individual to obtain a fixed payout which is the same throughout the time frame of the payment. This framework ensures fixed income to the individual after their retirement.

Variable Annuity – This offers a variety in the annuity payouts. So, payouts can be modified in the middle of one payout and the following, based on the market execution of the investment made with the pension or annuity fund.

Minimum amount of investment into a superannuation scheme depends on the contributor. Some insurance companies have a minimum allowed contribution value towards their superannuation schemes for example, Rs. 5,000 per year. Generally, there is no capping on maximum contribution that can be made towards a superannuation fund.

Life insurance plans associated with group superannuation insurance schemes are quite cheap. For instance, a superannuation fund bought from LIC that will also provide life insurance costs under 2000 per member. Life insurance covered in a group superannuation fund is an additional coverage and your employer has to opt for it.

Fund Management Charges – These are the charges deducted from the policy account at the end of each quarter or at the time of exit. Fund management charges vary with the size of the group superannuation insurance policy.

Market Value Adjustment – This is levied on the bulk exit and the complete surrender of a group superannuation plan.

Policy Administration Charges – This is charged by the insurance company towards maintenance of the group superannuation policy such as: paperwork, premium intimation and so on.

Surrender Charges – These are charges levied on the policyholder on grounds of leaving the group superannuation insurance scheme during the first three years except for reasons such as death, disability, etc.

Service Tax Charges – These charges, if exist, shall be borne by the master policyholder and this may vary with the time and government regulations.

Switching Charges – These charges are applicable in case a member decides to switch from one fund to another. In such case, a certain percentage of the fund will be charged as switching charges. Insurers provide a limited number of free switches in a year.

Group superannuation schemes are not available online.

Yes, it can be. Many insurance companies provide the facility wherein you will be able to check your superannuation benefit details as well as accumulations online.

Only a few leading insurance companies provide a group superannuation scheme. Some of the trusted insurance providers are: LIC of India, Future Generali, Reliance and ICICI.

An employee, as part of a group, can be benefitted from the group superannuation scheme set up by the organization. And simultaneously own a self-managed superannuation scheme and still reap benefits out of both of the policies.

In certain circumstances you can avail your superannuation fund before you retire:",

If you’re unable to work because of medical conditions

If you’re not able to meet your living expenses

If there are valid unpaid expenses that need to be paid out

If you suffer with terminal illness or injury

It takes at least 4-6 weeks to set up a superannuation scheme. The employer plans on creating a group superannuation fund, so they have to contribute to the fund on the behalf of the employees. Organizations can choose either to manage superannuation funds by their own trusts or to open a superannuation benefit fund with an approved insurance company or even buy a dedicated group superannuation product from insurance companies.

Below are the scenarios to make claims for the superannuation insurance plan’s accumulated funds:

If the employee retires from their service, they are eligible to receive the fund accumulated as part of their superannuation benefits or superannuation allowance

If the employee discontinues working at some point in time, they can withdraw 1/3rd of the accumulated superannuation fund’s wealth and get the rest of the amount as pension on retirement

In case a policyholder of a group superannuation insurance plan dies in service then the nominee is eligible to receive the accumulated sum. The process involves:

Filling a duly filled and attested copy of the claim form, as provided by the insurance company

Death certificate of the policyholder

Police copy and other required documents in case of accidental death

Valid ID proof

Insuropedia

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