| Insurance >> Employers & Employees >> Group Superannuation Scheme |
| An organization today, has not only to man the various positions with competent and trained personnel but also has to create an environment wherein they can give their best and derive a sense of well-being, a sense of fulfillment and security and take pride in their continued association with the organization. Provision of pension may be an attraction for such persons to continue in the organization and give their best to the organization, as with continuous improvement in longevity a regular income even after retirement has become a necessity. To provide the pension benefits to employees, an employer has two alternatives under the provisions of Rule 89 of Income Tax Rules 1962. |
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Create a privately managed trust fund and as and when a member retires, purchase annuity from LIC to provide pension for such retiring member.
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Entrust the Management of the Pension Fund to an Insurer by purchasing its Group Superannuation Scheme.
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| Advantages to the LIC managed Pension Fund |
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| The LIC managed Pension fund has the following added and distinct advantages:- |
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- An attractive and competitive yield on the fund will be credited to Fund A/c.
- The problem of liquidity gets automatically eliminated as soon as the fund is managed by LIC.
- We conduct free actuarial valuations of the funds administered by us from time to time.
- The Administration of the fund is carried out by us in a scientific manner and claims are promptly settled.
- Group Insurance in conjunction with the Group Superannuation Scheme can be taken by an Organization to provide for an attractive lump sum payment on the unfortunate death of a member while in service, at very nominal cost.
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| Superannuation Scheme provided by LIC |
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| The employer contributes a certain fixed percentage of salary of each member. Such Contributions are accumulated by LIC and the accumulated amount is utilized to provide various benefits as mentioned below. |
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| Benefits |
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1) On Retirement :
On Retirement of a member, the corpus (contributions plus interest) is utilized to provide the following :
- Commuted Value (Equivalent to 1/3rd of the corpus) which is tax free.
- The corpus that remains after providing for the commuted value is taken as the purchased price to provide for pension.
2) On Death :
The Pension is payable on the life of the beneficiary. Corpus is utilized towards the payment of pension of the type the beneficiary may opt and the benefit so received is tax free. A lump sum payable by way of death besides the pension, if the employer has taken Group Insurance Scheme in conjunction with the Group Superannuation Scheme.
3) On Withdrawal :
- He can get the equitable interest transferred to the Superannuation Scheme of the new employer provide the rules of both the Schemes provide for the same.
- He may opt for a pension from the normal retirement date as provided in the old employer's scheme.
- He may opt for payment of commuted value and pension, immediately in which case the benefits would be taxable.
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| Pension Options provided by LIC |
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Life Pension ceasing at death
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Life Pension with Return of Capital and Group Pension Terminal Bonus on death
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Life Pension guaranteed for 5,10,15 or 20 years and life thereafter
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Joint Life Pension payable on the last survivor of the employee and spouse
- Joint Life Pension payable to the last survivor of the employee and spouse with return of capital on the death of the last survivor. If desired , 1/3rd of the pension can be commuted at vesting
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| Eligibility Condition |
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| It is not obligatory or statutory on the part of the employer to provide for pension to all employees. It is entirely upto him to decide to which class/ classes of employees he desires to extends the scheme. The eligibility conditions may be defined on the basis of designation or salary. (However, after the categories are specified, employer cannot discriminate between the employees and thus extends the scheme uniformly). |
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| Contribution |
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| It is not obligatory or statutory on the part of the employer to provide for pension to all employees. It is entirely upto him to decide to which class/ classes of employees he desires to extends the scheme. The eligibility conditions may be defined on the basis of designation or salary. (However, after the categories are specified, employer cannot discriminate between the employees and thus extends the scheme uniformly) |
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| Who pays Contribution? |
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| Mostly the employer contributes, but is so desired, both the employer and the employees may contribute, in which case the scheme is called a Contributory Pension Fund Scheme. |
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| Tax Benefits |
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| The provisions relating to the approved Superannuation Scheme are set out in Part 'B' of the Fourth Scheme of the Income-Tax Act, 1961 and Part XIII of the Income Tax Rules , 1962. The income tax concession will be available only if the scheme is approved by the CIT. |
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- The annual contribution is treated as a deductible business expense in term of Section 36(1) (iv) of the I. T. Act
- In terms of a Notification issued by the Central Board of Direct Taxes .80% of the contribution (s) towards the past service liability are treated as deductible business expenses spread over in the subsequent years of payment
- The employee's contribution , in the case of the Contributions scheme qualifies for exemption under Section 88 of the Income-Tax Act
- In terms of section 17(2)(vi) , the contributions paid by the employer are not treated as perquisites in the hands of the employee concerned
- In terms of Section 19(25)(iii) of the Income-Tax Act, the interest on the fund is exempt from tax
- In terms of Section 10(13) of the Income-Tax Act, the benefits payable on death are exempt from tax
- In terms of Section 10(10A)(ii) of the Act, the admissible commuted value on retirement is tax-free
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| How is the Scheme Installed? |
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| The employer is required to take the following steps to install the Scheme : |
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- Appoint Trustees (minimum 2) for administering the Scheme, draft the Trust deed and Rules in consultation with L.I.C. and execute the trust Deed to establish an irrevocable Trust.
- Get the resolution passed by the Board of the Company for opting for the L.I.C. Group Superannuation Scheme.
- Make an application to C.I.T. for approval under Part 'B' of the Fourth Schedule the Income-Tax Act, 1961.
- Forward to L.I.C., the Master proposal Form duly signed by the Trustees, Employees data, satisfactory evidence of age of each employee, copies of Trust Deed and Rules and cheque towards payment of contribution.
- Trustees to open Bank account in name of the Trust and future contributions to be routed through trust.
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| Group Insurance Scheme in Conjunction with Superannuation Scheme |
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| The members of the Group Superannuation scheme can be covered under Group Insurance in conjunction with superannuation scheme so as to provide death risk cover while in service subject to certain conditions. |
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| Gruoup Size |
Scale of Cover |
Max. limit of Cover |
| 10-49 |
2 months salary for each year of future service on death |
1.75 lakhs |
| 50-99 |
2 months salary for each year of future service on death |
3.00 lakhs |
| 100 & more |
2 months salary for each year of future service on death |
4.00 lakhs |
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| Interest rates for 2004 - 2005 |
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| Fund Size |
Rate of Interest |
| Below Rs. 25 lakhs |
7.40% |
| Rs. 25 lakhs or more but less than Rs.1 Crore |
7.55% |
| Rs. 1 crore or more but less than Rs.10 Crores |
7.75% |
| Rs. 10 Crores or more but less than Rs.50 crores |
7.95% |
| Rs. 50 crores or more but less than Rs. 100 crores |
8.05% |
| Rs. 100crores or more but less than Rs.200 crores |
8.10% |
| More Than 200 Crores |
8.20% |
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