An integral part of social security in India is superannuation benefits. These are available in different formats. Employers can compare and identify the best plans available that they can then offer their employees.
In India, Superannuation plans come in two main types: for accumulating retirement savings and for generating pension after retirement.
Post-retirement benefit plans
While the central government offers plans for accumulating savings before retirement, one can buy post-retirement annuities from life insurers. Such annuities have different options including payable for life and payable for life guaranteed for 5, 10, or 15 years. Another option is payable for life with a return of capital, meaning that on the death of the insured, the annuities stop and the nominee gets the entire premium. Growing annuity for life offers an annual increase in an annuity, typically of 5-10%. This is meant to cater to inflation costs. Yet another option is payable jointly on the life of husband and wife.
Life insurers also offer unit-linked pension plans. Here, contributions go towards buying investment funds. Moreover, on maturity, the insurer pays a certain amount and the remaining goes into an annuity plan.
Similarly, banks and mutual funds offer monthly income plans with the following features:
- monthly, quarterly, half-yearly pension pay-out;
- time-limited deposits for banks; and
- equity exposure for monthly income plans from mutual funds.
Click here to know what are the tax benefits available with superannuation schemes in India
Case study: Retirement benefits and investment options
Delaware Irani turns 60 this month and will be retiring. Consequently, he expects to receive approximately Rs 1.3 crore as gratuity and other retirement benefits.
His tax advisor has suggested that he use at least 60% of this money to create a pension stream for himself. In fact, the advisor estimates that approximately Rs 35 lakh is already in a pension fund which will be generating a monthly income of Rs 21,500 a month. But this may not be sufficient for Delawar as inflation rises.
Thus, the advisor suggests that Delawar use another Rs 10 lakh to purchase a pension plan from a life insurer. Ideally, the plan should start paying out at least 5 to 10 years from now. Meanwhile, it will be growing tax-free with the insurer. The advisor advises Delawar to invest another Rs 10 lakh in a balanced mutual fund to get high growth for the next 10 years. Thereafter, he can use the maturity amount to create an additional pension.
The remaining amount will help close out ongoing loans and buy a vacation house for Delawar and his wife.
In this way, Delawar will be able to diversify his investments and ensure more than one avenue for pension pay-out.
