No Entry for New Senior Managers in Group Pension Scheme : IRDA

The insurance regulatory IRDA has barred the entry of new employees into group pension scheme which was usually offered by India Inc’s top employers as an additional retirement benefit for middle and top managers. Several top employers in India allow managers to invest about 15% of their basic salary into group pension plans apart from Employee Provident Fund (EPF) and gratuity.

One of the officials from a headhunting firm for senior professionals, said that, group pension plans are usually offered at the senior level to employees with 10-12 years of experience earning above Rs.15lakh per annum. No entry to group pension plans is a sad news for employees because their tax liability will go up.

According to an official from HDFC Standard Life Insurance, 15% of employees’ basic salary is usually invested in group pension schemes, as it is a tax-saving product. Contributions to these group pension schemes are linked to the basic salary of employees. So, a manager earning Rs.25 lakh per annum could contribute Rs.1.5-2 lakh into the scheme.

Under the Income Tax Act, contributions to pension schemes and employee provident fund up to 27% of a company’s annual salary are treated as deductible business expenses. But these are not mandated by law. According to an official from Randstad India, managers’ compensation structure might be changed in the absence of group pension plans but tax liability is bound to go up.

Earlier, IRDA asked insurers to withdraw all group superannuation products that do not comply with its pension guidelines by April 2012. Now, it came with a circular on June 13, saying that existing group superannuation policies cannot enroll new members.

1 comment on “No Entry for New Senior Managers in Group Pension Scheme : IRDA”

  1. Interesting posts