Group superannuation scheme: Ageing gracefully

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: Old-age security is one of the key parameters of gauging the development of an economy and an individual's standard of living. India as a nation is still to travel a long way to match the standards of developed nations when it comes to old age security. Barely 10% of the total population enjoys an access to old age security. With the advent of the concept of nuclear family and increasing longevity of human life the issue of old age security further demands higher attention.

Life insurance companies, however, have already taken steps on this path, introducing the superannuation schemes on group platform. Superannuation schemes, also known as pension or annuity schemes, are of two types - defined contribution and defined benefit.

Defined contribution scheme is one in which the employer decides the contribution to the scheme. This contribution is ascertained as a percentage of the salary. The pension amount is ascertained at the time of retirement, depending on the accumulated amount.

Defined benefit scheme on the other hand takes into account the amount of benefit an employee will get on his retirement. Actuarial valuation is conducted to ascertain the funding rate. Based on various factors like years of contribution left, accumulated funds with interest, interest rate estimates, etc, the funding is ascertained.

Being voluntary in nature, employers can decide on the benefits and eligibility criteria for the scheme. The insurance companies invest the superannuation fund in approved securities. Individual employee accounts reflecting the contributions and the interest accumulations are maintained. Upon retirement, the accumulated amount (also known as purchase amount) is released to provide funds to secure the benefits.

The employee upon retirement can commute or withdraw up to 33% of the accumulated amount and the rest of the money can be used to purchase pension. In case of employees who are not entitled for gratuity the commuted component can be 50% of the accumulated amount, as per the plan features. Some of the options an employee has when he is buying pension at the time of retirement are mentioned below:

• Life annuity: The pensioner enjoys a stipulated amount of pension till he is alive. On his death the pension stops.