Gratuity funds save blushes for life insurers

With superannuation funds coming under the ambit of fringe benefit tax (FBT), all may not be lost for life insurers as they are increasing the focus on gratuity fund.

Nilesh Sathe, chief of pension and group insurance schemes, LIC, said, " We are focusing on taking over privately administered group gratuity funds and also on marketing group leave encashment scheme to ensure that fiscal targets are met."

Impact of FBT on superannuation is not seriously felt by LIC at present, as major contributions to superannuation funds are received in the last quarter of the financial year, he added.

LIC, which holds the largest corpus in the country, has Rs 35,490 crore under the group business as large as 50 per cent contributed by gratuity fund of Rs 17,800 crore, while superannuation fund contributed Rs 9,020 crore and Rs 8,670 crore under annuity fund as on March 31, 2004.

The gratuity fund includes group leave encashment fund.

Sathe said LIC's contribution under the gratuity fund is larger than superannuation fund as the payment of gratuity by an employer is a statutory obligation while superannuation benefit is a voluntary benefit offered by progressive employers.

On the contrary, for private life insurers under group insurance portfolio almost 50 per cent is contributed by superannuation, while the remaining is contributed by gratuity and a small portion comes from annuity.

Sandeep Shirkhande, vice-president and head-group insurance, Kotak Mahindra Old Mutual Life Insurance, said the company was focusing on garnering gratuity fund from corporates on the event of FBT's negative impact on superannuation.

"We are were the market is and now the market is in gratuity funds," said, Tarun Chugh, head- group solutions and alliances, ICICI Prudential Life.

Since April 2005 till now ICICI Prudential Life Insurance has reported a corpus of Rs 75 crore under the group employee benefit portfolio which includes superannuation fund, gratuity fund and annuity.

Chugh said superannuation and gratuity funds almost contributed equally to group employee benefit portfolio of 49 per cent each and remaining 2 per cent was contributed by annuity.

Corporates take group superannuation fund to offer it as retirement benefit to employees.

In Budget 2005-06, finance minister P Chidambaram introduced the FBT (tax on corporates offering benefits to its employees other than salary and wages such as perks) included superannuation as well.