There are many factors that can enhance or decline the chances of your employees sticking to the organisation. A good pension plan is one of them. While subscribing for the plan there are many factors you will need to consider, to ensure a healthy retirement solution for your employees.
Following are some of the important factors:
- Approval of the Plan: Unless the superannuation plan is approved by the Income Tax Commissioner, the contributions made to the plan will not be eligible for tax deductions.
- Financial Capacity of the Provider: Group Pension Plans are usually offered by Life Insurance Companies, and their financial wellbeing is reported by IRDA in its annual report. Check for the Solvency Ratio of the Insurer, lawfully it should be more than 2.5, however you’d like to stick to an insurer with higher ratio.
- Administrative Expenses: These are the direct cost of maintenance and investment deducted from the annual contributions of the plan. A higher cost means lower benefits for your employees, but may also mean better service for you. Therefore, it’s important to strike a balance here.
- Choices of Pension: Although, it may be lucrative to use the plan to offer a lump sum payment at the time of retirement to the employee, it may not always be in their best interest. It’ll be better if the employees are offered choices on how they wish to receive their retirement accumulation, i.e. as a monthly pension etc. as they do not have an income source.
- Pension to Beneficiary/Life Cover: This is optional as you may already have a group term life cover for your employees but if not, you may also check whether there can be a life cover as well (it may even be compulsory for employers liable for EDLI).
- Whether Employees Can Contribute: May be for now you want to keep the contributions limited to the organisation only, but in case later employees also wish to contribute to their pension, the insurer should have the option to allow the same under the same scheme. The scheme will become a “contributory pension fund” in such case.
Case for Group Superannuation Products
M/S Mistry Ltd. is looking to offer its employees a group superannuation plans and they have come across multiple offers from the pension funds. While almost all of them are approved pension schemes, the factors which worry the director Mr. Swarup Kahuna are the management costs.
Rajev Mittal, his CFO has some suggestions, that might make the decision easier for Mr. Swarup. He suggests that, we should be looking for the:
- Pension Choices
- Contributory status and
- Past financial performance of the insurer
All these will have a direct effect on the outcome of the pension at the time of retirement, additionally he suggested that we should look for a life cover, which should be an added benefit to offer support to the family of the employee meeting an unfortunate end.
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