There are several types of retirement plans available in India, depending on benefits offered:
Superannuation plans:
Superannuation plans are optional retirement plans that are often offered to selected employees.
They can be defined benefit or defined contribution in nature.
However, they are not very popular with the because they are not portable, have a very long vesting period and the funds cannot be withdrawn before a certain age. Indian companies use this product as a long-term incentive benefit for middle and senior management.
Funding for these products is usually through insurance products, and the insurance companies take care of the administration, compliance and investment management. Recently, the insurance regulator issued instructions because of which new members may not be admitted until the regulator has announced new regulations governing the plans.
Once those regulations are released, the insurers will need to restructure their products to be compliant before the employers can offer the benefits to new employees
Pension plans: Legacy pension plans in India are limited to certain industries (like banks, mines, factories, railways and others) or were created in other cases because of union pressures.
Very few private companies sponsor pension plans in India.
One of the significant changes that are taking place in relation to retirement benefits is the introduction of the National Pension Scheme (NPS). Let’s understand further!
NPS is a universal defined contribution retirement scheme, funded by employee contributions only. However, the NPS regulator has announced an option described as a payroll deduction, whereby the employer can make contributions on behalf of employees and claim them as a business expense. Meanwhile, the employee may also claim a personal tax exemption for the contribution made by the employer on his behalf. The deduction is available only up to a certain limit specified by the income tax authorities.
Types of NPS:
Tier I: Mandatory, a basic account with limitations of withdrawal as follows:
Tier II: Voluntary savings scheme and withdrawal can be limitless
Pension funds managers registered by PFRDA manage the money invested in NPS. The list of fund managers is as follows:
NPS offers two options:
Active: Where the investor decides where the money should be invested from the following option (Either one of the following or a combination)
Auto choice: Default option where the money is automatically invested in line with the age of the scheme holder
You can change your investment choices once a year! You can even change your scheme and funds manager as well.