INTRODUCTION:
Most employers provide various retirement benefits to their employees either due to a statutory mandate or voluntarily to retain employees for a longer period. Such retirement benefits include provident fund, gratuity, National Pension System etc.
Superannuation benefit is one such retirement benefit offered to employees by their employers. Many a time’s employees ignore this retirement benefit. In fact, many may not even know that they have been provided with superannuation benefit as the contribution to the benefit does not go out of their pocket. Some may also be unaware of the superannuation amount they are entitled to at retirement. Given this, it becomes imperative to understand what the superannuation benefit is in order to help individuals have better financial planning and plan retirement efficiently.
DEFINITION:
The dictionary meaning of the word ‘superannuation’ or ‘superannuate’ is to become retired, to retire because of age or infirmity. Superannuation benefit is a retirement benefit offered by an employer to its working class. Superannuation is an organizational pension program created by a company for the benefit of its employees. It is also referred to as a company pension plan.
TYPES:
Superannuation benefit is classified into the following in India based on the investment and benefit it offers:
Defined benefit plans -As the name itself suggests, in this kind of superannuation, the benefit derived is already fixed irrespective of contribution to the plan. The pre-determined benefit is based on various factors such as a number of years of service in the organization, salary, age at which employee starts reaping the benefit. This is comparatively complex and risk of generating such benefit lies on employer. Upon retirement, an eligible employee receives a fixed amount which is determined by the pre-existing formula, at regular intervals.
Defined contribution plans – This superannuation benefit is opposite to defined benefit plan. While in case of a defined benefit plan, the benefit is fixed and pre-determined, defined contribution plan has a fixed contribution and benefit is directly correlated with the contribution and market forces. This type of benefit is better to manage and the risk is with the employee as he does not know how much he will receive at retirement.
OVERALL…….
Comments