Superannuation vs NPS – Which is Better?

The National Pension Scheme has been available to the public for more than eight years. Also, many people have started investing their money in this scheme? But why are more and more investors, business owners, and self-employed people showing interest in NPS? We will discuss the same thing here in this article and superannuation.

You might be wondering, “what is superannuation.” It’s a pension kind of benefit that the employer provides. However, most employees ignore it as they do not need to make some significant contribution. So, stay here and understand superannuation vs NPS to choose the best investment option for a retirement benefit.

Superannuation vs NPS

What is NPS?

The central government’s initiative is to encourage Indian residents to make some savings for post-retirement life. This scheme is available for all those professionals who are doing private jobs, working in the public sector, or are self-employed with a maximum turnover of Rs 1.5 crore. Under NPS, you must allocate a certain amount of your income at predecided intervals. And at the time of maturity, you are eligible to receive a lump-sum payment and some monthly pension. It also provides you a 40% to 60% tax benefit on the scheme amount you have decided.

Benefits of NPS for Subscribers

Let’s discuss the benefits of NPS or the national pension scheme for its users.

  • It’s a voluntary contribution where subscribers have the facility to decide the maturity time and the contribution amount they wish to make.
  • NPS contains little risk as almost 50% of the amount gets invested into equity options and the rest in others. However, the equity exposure can vary based on the subscriber’s profile and the chosen NPS account.
  • There are the highest standards of transparency maintained by government bodies. This program is regulated by the Pension Fund Regulatory and Development Authority of PFRDA. This trust makes sure your investments are in line and getting invested in the right way to get good benefits.
  • NPS schemes can provide you up to 10% yearly growth or return on your investment, which can be more than the traditional investment options like PPF. However, if you are not happy with the current return, you have the facility to change your fund manager.

What is Superannuation?

A superannuation scheme is the type of pension scheme provided by the organizations and companies to their employees. It is a post-retirement benefit that employees receive in a pension. Companies and organizations provide it; it is also called a company pension scheme. If you get superannuation benefits from your company, then you can avail up to 33% tax benefit while filing the return.

Benefits of Superannuation for Subscribers

You can get two superannuation benefits as mentioned below.

Defined Benefit Schemes

It is the defined benefit of investing in superannuation schemes; here, the future amount is already decided on several factors, including how much money you put in the scheme. The amount is calculated based on the number of contributions, years you have served, age, gender, and more.

It might be a tricky situation for the employer as they can bear a little risk on the compensation they are providing. They use a pre-defined formula to calculate the superannuation benefit value for the employee.

Defined Contribution Plans

It’s quite the opposite scheme compared to a defined benefit plan because here the employer puts fixed contributions and benefits in the hand of market forces. Hence, here you can be at risk as you are unaware of the benefit you will get from this scheme. Also, these plans are easy to manage, and employers can find this type more suitable.

How is NPS Different from Superannuation?

In general terms, both superannuation benefits and NPS can look similar. But when you see the tax benefits and compare them with each other, you will get shocked. Superannuation funds provide you with a 33% tax-free fund on retirement. In contrast, you get a 60% tax-free amount in the NPS scheme, which is impressive for the beneficiary. Also, you can have to pay 1.8% GST on superannuation, but in NPS, there are no GST charges. So, if you want to get substantial benefits during your retirement time, it’s better to consider NPS rather than superannuation. Below is a detailed overview of the same to better understand it.

Superannuation vs NPS

 Superannuation Benefit NPS or National Pension Scheme 
The maximum limit for the employer for contribution to schemes It can be 15% of an employee’s salary but not more than Rs 1,50,000 per employee. 10% of the employee’s salary, including DA (dearness allowance) The contribution by the employer under IT Act’s section 80CCD 10% of the salary of employee and DA is eligible to get tax benefit available under section 80CCE There should not be any monetary ceiling on employer 
The maximum limit for an employee to contribute to schemes An employer can make up to Rs 1,50,000 per anum contribution in a superannuation scheme as per IT act’s section 80C. Employee contribution is eligible for deduction under 80CCD (I) of IT Act that includes 10% of basic salary + DA if applicable, but deduction amount can not be more than Rs 1,50,000. Additional benefits can include up to Rs 50,000 under section 80CCD 1(B) of the IT Act. Some other benefits that are exclusively available to NPS,  
Benefits  Lump-sum amount but not more than 33.33% of accumulations or 50% if there is no gratuity. An annuity is a taxable amount and taxed based on Income Tax Slab Rate.  The lump-sum amount should not be more than 60% of the amount, or it can be 20% if the withdrawal happens before maturity. The annuity amount can be a minimum of 40% in typical cases and 80% if the withdrawal happens before maturity and is taxed based on age group.  

Conclusion

Superannuation and NPS are both different plans that are related to retirement benefits. In both the plans, you get a lump-sum amount and annuity benefit. But for tax benefits, you get 33% tax-free income in superannuation benefits whereas 60% in NPS. Also, NPS provides a better return for its subscribers than superannuation. Therefore, many corporations and individuals have started preferring NPS to avail of tax benefits.

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