Since retirement is one of the biggest worries of employees, companies offer a host of retirement plans to their staff. Such retirement benefits offered by an employer are called superannuation benefits. But in a fast-paced world focusing on salary hikes and promotions, many employees need more awareness to pay attention to these benefits. Are you an employee who doesn't know much about superannuation? Read on to learn about superannuation, its allowances, and much more.

What is Superannuation?

Superannuation benefit is a type of retirement pension. This is mainly provided by an employer (company) to its staff or employees. Think of superannuation as a pension plan designed for the well-being of employees. This will result in payouts from the superannuation fund, which can take various forms such as allowances or other benefits. Many companies refer to superannuation programs as company pension plans or CPP.

What Are Superannuation Benefits?

Since a sum is regularly contributed to each employee’s superannuation account, naturally, this amount grows and compounds over time and is eligible to be paid out to the specific employee.
You may think small contributions don't add much. But even a monthly sum for superannuation can grow to a large enough capital that can aid in addressing expenses after retirement. Since employers generally buy group superannuation plans from insurance firms, the profit delivered by the insurer gathers in employee superannuation personal accounts.
Superannuation benefits can be of two major types: defined benefits, where the benefit delivered to an employee is fixed in nature; the second type is defined contribution plan, where the benefit is not fixed but a contribution to superannuation is fixed. In defined benefits, the employer is responsible for delivering the defined benefit. In the case of a defined contribution, there's no associated risk for the employer.

What Is the Difference Between Superannuation and Retirement?

Superannuation refers to the process of an employee being retired from service upon reaching a specified age, typically 58 or 60 years old.
On the other hand, retirement is the phase after an employee completes work as staff at a workplace.
Simply put, superannuation means you reach the pension eligibility age at the employer. After superannuation, the next logical subject for an employee is pension superannuation. How the superannuation pension is paid, or the quantity paid, depends on the superannuation plan opted for.

Types of annuity options available

An employee is allowed to withdraw up to one-third of the accrued benefits upon retirement. The balance (2/3rd) can be converted into a regular pension. This can be done by keeping the funds in an immediate annuity fund for enjoying annuity returns at fixed intervals.
So, you must be wondering what annuity options can be used for the corpus you get at superannuation. Immediate annuity plans generate pensions from superannuation corpus. So, the annuity plans will give a superannuation pension.
Most common annuity options available are as follows:

1. Payable for life - The annuity amount is given as long as the annuitant is alive.
2. Payable for life guaranteed for 5/10/15 years - The annuity is guaranteed for a fixed period.
3. Payable for life with a return of capital - An improved version of 'payable for life'; here, annuity is paid till the annuitant is alive, and after their demise, the initial investment is returned to the nominee.
4. Payable jointly on the life of husband and wife - The annuity amount is paid as long as the husband or the wife is alive.

Benefits of Superannuation in Income Tax

The income tax rules cover any maturity corpus. You may be curious to know whether superannuation benefits are taxed.
Employers and employees can both enjoy the superannuation scheme concerning income tax savings. It's important to note that to qualify for these superannuation benefits, the superannuation pension provided by the employer must have approval from the Income Tax authorities.
From an employee perspective, the tax benefits are interesting. One, if an employee approves the superannuation fund, the regular investment contribution is counted under Section 80C under the old income tax regime. In this case, the overall cap of the deduction is ₹1.5 lakh under that section. Superannuation payments made to an employee upon reaching a certain age are tax-exempt. Similarly, benefits received due to the death or injury of an employee are also free from taxes. If the employee cannot work before retirement, superannuation will be tax-free.
Do note that the employer’s contribution for superannuation of up to Rs 1.5 lakh is tax-exempt. However, if the contribution exceeds Rs 1.5 lakh, the amount beyond that will be taxed as a perquisite (perk) for the employee.
The 2020 Budget set a combined upper limit of Rs 7.5 lakh for the employer's yearly contributions to NPS, RPF, and the Superannuation fund. Contributions by the employer above this Rs 7.5 lakh threshold will be taxed as perks in the hands of the respective employee.
Thus, most forms of superannuation allowance are not touched by tax if thought through. So, superannuation benefits could be a smart way to enjoy financial savings without being unnecessarily taxed.

How does superannuation work?

A superannuation plan works in the following way: money deposited in such an account will grow up to retirement age or till it is withdrawn, and this is without any tax issues.
For the uninitiated, a superannuation scheme is simply a retirement plan. It can be managed by an entity such as a trust empowered by the employer or an insurance company approved to manage superannuation by PFRDA.
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