India Inc divided over superannuation fund

New economy firms opt out of contribution due to FBT.

The 100 per cent fringe benefit tax on contributions to superannuation funds has resulted in a clear divide between old and new economy companies. While the former have decided to continue with the funds despite the additional tax blow, the latter are reluctant to do so.

The divide has more to do with the age profile of employees. In most information technology, BPO and biotechnology companies, employees are mostly in their twenties and are not enthused by the idea of a superannuation fund. The managements in these companies see little reason to bear the extra burden as employees themselves prefer the additional cash at hand.

In lieu of corporates contributing to superannuation funds, employees in these companies will get an additional monthly sum of 10 to 15 per cent of their salaries.

On the other hand, old business houses like the Tatas, Godrej and the Birlas view the importance of continuing superannuation funds as part of a loyalty programme for those who have stayed with the company for years.

Contributions made to these funds are meant for ensuring pension to employees after retirement. While in many cases the fund is largely for senior management teams, many organisations offer superannuation benefits to all their employees.

"We see contribution towards superannuation as an issue of balancing between an efficient remuneration structure and social responsibility to the community," said M R Rajaram, chief financial officer and executive director, ICI India Ltd, which will have to take a Rs 1-crore hit on account of the tax on superannuation funds.

The Gurgaon-based paint manufacturer has decided to continue with the superannuation fund for all its employees.

Sanjay Parandey, vice-president (corporate finance) at Kirloskar Oil & Engines, said the fund was a contractual agreement with its employees and the company would not discontinue it.

"We will need to strike a balance between employees' interests and that of the company," said Parandey.

New economy company executives, however, beg to differ. Says Joel M Farnworth, senior manager HR, HSBC: "If you offer employees more cash, you are giving them choices as to what they can do with their money." The foreign bank has decided not to continue with the superannuation fund.

"One needs to realise that a young employee force is not thinking about the next 30 years, but perhaps about the next 5 to 10 years," he added.

The chief financial officer of a Delhi-based IT firm said young employees did not see retiral benefits as remunerative as they did not want to stay in one company for more than a couple of years.

The interesting point, however, is that while most domestic IT companies have decided to discontinue the superannuation funds, the foreign ones have decided to go ahead in line with their global practice.

Tarun Chugh, head group solutions, ICICI Prudential Life, said: "Most multinational companies will continue with the funds as the fringe tax is not new to them."