Rule 307: Insurance scheme or annuity purchase by superannuation fund trustees
Rule 307 sets how trustees provide annuities. Rules 301 to 315 govern approved superannuation funds under Part B of Schedule XI to the Act. They either enter into a scheme of insurance with LIC or another insurer as defined in section 2(58), or accumulate contributions for each beneficiary and buy an annuity from LIC or another insurer at retirement, death or incapacity before retirement. This does not apply to irrevocable pension funds under the listed banking and financial institution laws.
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Bare law
Rule 307 - Scheme of insurance or annuity
(1) For the purpose of providing the annuities for the beneficiaries, the trustees shall—
(a) enter into a scheme of insurance with the Life Insurance Corporation established under the Life Insurance Corporation Act, 1956 (31 of 1956) or any other insurer as defined in section 2(58) of the Act; or
(b) accumulate the contributions in respect of each beneficiary and purchase an annuity from the said Life Insurance Corporation of India or any other insurer at the time of the retirement or death of each employee, or on his becoming incapacitated prior to retirement.
(2) The provisions of sub-rule (1) shall not apply to a fund established or constituted, under an irrevocable trust, which has its sole purpose to make payment of pension or family pension, in accordance with the rules or regulations made under the following enactments:—
(a) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970); or
(b) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980); or
(c) the State Bank of India Act, 1955(23 of 1955); or
(d) the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); or
(e) the National Bank for Agriculture and Rural Development Act, 1981(61 of 1981); or
(f) the Industrial Development Bank of India Act, 1964 (18 of 1964);
(g) the Export-Import Bank of India Act, 1981(28 of 1981); or
(h) the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984); or
(i) the Small Industries Development Bank of India Act, 1989(39 of 1989); or
(j) the National Housing Bank Act, 1987 (53 of 1987).
Rule breakdown
Two methods: Rule 307(1)
Scheme of insurance with LIC or any insurer under section 2(58).
Accumulate contributions and buy an annuity from LIC or another insurer at retirement, death or incapacity before retirement.
Exception: Rule 307(2)
Irrevocable trust funds solely for pension or family pension under rules or regulations made under the listed Acts, including the Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970 and 1980, State Bank of India Act, NABARD Act, IDBI Act, EXIM Bank Act, IRBI Act, SIDBI Act and National Housing Bank Act.
Key takeaways
Insurer route
LIC or another insurer.
Accumulate and buy
Annuity bought at retirement, death or incapacity.
Exception
Certain statutory pension funds are outside the rule.
Practical checklist
- Choose and document one of the two methods.
Avoid
- Do not pay annuities directly from the fund outside these methods unless the Rule 307(2) exception applies.
FAQs
Must annuities be bought from LIC?
From LIC or any other insurer as defined in section 2(58) (Rule 307(1)).
When is the annuity purchased under the accumulation method?
At retirement or death of the employee, or on incapacity before retirement (Rule 307(1)(b)).
Which funds are exempt?
Irrevocable pension funds under rules made under the Acts listed in Rule 307(2).
Glossary
- Insurer
- As defined in section 2(58) of the Act.
- Annuity
- Periodic payments to the beneficiary.