The Hindu Business Line : Superannuation scheme to regain favour

The group superannuation scheme is expected to be back as an attractive option for life insurance companies since fringe benefit tax (FBT) will not apply to contributions of up to Rs 1 lakh. The good news is that about 90 per cent of the contributions to superannuation schemes fall within the Rs 1 lakh bracket.

Mr R. Venugopal, Executive Director of LIC, which holds 82 per cent market share in the group business, said that except in the case of employees like senior management of top corporates, around 90 per cent of the contributions fall within the limit of Rs 1 lakh per employee.

LIC is already planning on introducing a unit-linked superannuation scheme next fiscal, he added.

LIC runs 6,125 group superannuation schemes, covers over eight lakh people, and receives an annual premium of Rs 930 crore in this segment.

The corporation had a corpus of Rs 10,455 crore under superannuation as on March 31, 2005.

Mr Venugopal said that while Rs 1 lakh would be exempt from FBT, the exemption limit of up to Rs 1 lakh under 80 C may not be completely utilised.

To utilise the exemption under 80 C, the employee would have to write a letter to the employer seeking diversion of a portion of the salary to the superannuation fund.

However, since the employee could also have individual life insurance policies or other savings instruments like provident fund, he or she might not use the full limit.

The players that saw a drop in group business premium for the year ended December 31, 2005 include Max New York Life (79 per cent), Birla Sun Life (67 per cent) Kotak Mahindra Old Mutual Life (18.4 per cent), and SBI Life (14 per cent).

According to Mr Nani Javeri, CEO of Birla Sun Life Insurance, the specific announcements towards increase in limit of exemption for contribution to pension products and exemption from FBT for contribution to superannuation funds up to Rs 1 lakh a year are welcome steps for the life insurance industry.

More Stories on : Budget | Life Insurance | Pension Plans

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