India Inc aims to make retirement plans more attractive to retain employees

“Traditional statutory benefits, like the provident fund and gratuity, are crucial but often fall short of covering the financial needs of employees in their post-retirement years,” said Ritobrata Sarkar, head of retirement, India for WTW – a global advisory, broking and solutions company. In fact , superannuation, which typically takes place when the employee turns 58-60 and the employee is eligible for a certain number of benefits, is also seeing a change.

“Superannuation plans are not portable when employees switch jobs, unless the new employer also offers a superannuation plan, which can be a drawback. Second, setting up a separate trust for superannuation adds to the compliance and administrative burden, making it less attractive for companies,” Sarkar told Mint.

Transition to corporate NPS

In a study – 2024 State of Retirement Benefits in India, shared exclusively with Mint, WTW said that more than half the Indian employers that are not currently offering corporate NPS plan to introduce the benefit in the near future. About 138 employers were part of the study and included companies from manufacturing, IT, and financial services.

“While the legally mandated retirement benefits remain unchanged, we are considering converting the superannuation fund to a corporate NPS. This change would enable employees to benefit from market-linked returns, thereby growing their retirement corpus more effectively compared to the previous method where funds were managed by the organisation,” said Sitaram Kandi, chief human resources officer, Tata Motors, in response to Mint’s queries. The auto major noted that the option would be given to employees across hierarchies. “This approach is cost-effective and flexible, allowing employees to choose their pension fund managers,” he said.

The government introduced the NPS on 1 January 2004 to replace the old defined benefit pension system for its employees. Corporate NPS is offered as an employee benefit both in the public and private sector companies (voluntary for the latter) with contributions from both employees and employers with tax benefits. These contributions are invested in a range of assets, including shares, and bonds, depending on the subscriber’s choice.

The HR head of a leading power company said that from the new fiscal year, the firm will shift to the national pension system along with its superannuation benefits. “Employees have asked for NPS and we are in the final stages of getting it cleared. Employees wanted NPS as an option along with ususal superannuation, PF and gratuity benefits,” said the HR chief who did not want to be identified.

Beverages maker Coca Cola India too has adopted NPS. “We welcomed the introduction of the National Pension System in 2024 as it augments a strategic pillar of our overall well-being strategy for our associates,” the firm said.

Balancing retention and skepticism

Consumer goods maker Nestle India said it follows a “consolidated approach” on retiral benefits for its employees that includes “monthly pension for their retirement years, besides the provident fund accumulations and gratuity that the employees receive at the time of retirement.”

As companies look at retaining talent for long, a clutch of retirement benefits becomes crucial. “Retirement and health insurance plans assist employees in transitioning smoothly into retirement by offering benefits that provide higher returns, are comparatively risk-free, and are tax efficient. The plans include options like normal annuities, deferred annuities, and systematic withdrawal plans (SWP), which not only attract talent but also contribute to long-term employee retention,” Kandi of Tata Motors said.

However, not all are convinced. Navnit Singh, chairman and regional managing director of search firm Korn Ferry India refuted that the retirement schemes can attract top talent. “Companies are working on long-term incentives. The number of CXOs retiring are few and LTIs (long-term incentives), rather than pension plans, will be the key”.