Superannuation is an investment designed to provide money for your retirement. It is an investment vehicle which operates primarily to provide benefits for retirement. This scheme makes it compulsory for employers (Not compulsory in India) to contribute or deposit a set percentage of the pre tax salaries i.e salary before tax deduction, of their employees into their employees nominated superannuation accounts. Superannuation savings are usually made through trust funds and if these funds meet prescribed government standards they are eligible for tax concessions.
In simpler words superannuation is setting aside funds during working life for use as retirement income. The balances of the accounts are invested. Superannuation funds have expert people working for them called investment managers. The investment manager’s job is to make sure your money grows by earning the best rate of interest. The interest earned by the superannuation fund is also taxed at a lower rate than if you were to have the money in your bank account. Over a long period of time your super contributions build into a larger sum that earns interest and grows until you retire. When you retire this money is paid to you. Superannuation accounts cannot be accessed until the beneficiary reaches ‘preservation age’ (which can be anywhere from 55-60) and permanently retires, or reaches the age of 65 whether working or not, or in a very limited range of exceptional other circumstances.
Features Of Superannuation Fund
- It is a corpus created by the companies to provide retirement benefits
- Typically employers either set up trust funds to manage these schemes or buy policies
from insurance ﬁrms.
- Company pays some percentage of basic wages as superannuation contribution.
- There is no contribution from the employee i.e. Why it is called non-contributory
- This contribution is invested by the Fund in various securities
- Interest on contributions is credited to the members account. Normally the rate of interest is higher than bank account.
- Interest earned on investments is tax free in the hands of the trust and accruals to the employees
- On attaining the retirement age, the member is permitted to withdraw 1/3rd (25%) of the balance available in his/her account as a tax free benefit.
- The balance 3/4th(75%) is put in a annuity fund, and the agency (Like LIC) will pay the member a monthly/quarterly/periodic annuity returns depending on the option exercised by the member. This payment received regularly is taxable.
- In the case of resignation of the employee, the employee has the option to transfer his amount to the new employer. If the new employer does not have a Superannuation scheme, then the employee can withdraw the amount in the account, subject to deduction of tax and approval of IT department, or retain the amount in the Fund, till the superannuation age.
- In India :- Normally Companies do not extend the Superannuation benefits to all employees- but only to a specific category of employees – like for example Level-1 of Managers onwards.