Is higher pension scheme beneficial

The Employees' Provident Fund Organisation (EPFO) has extended the deadline for choosing the higher pension option to June 26. The current deadline would have expired on May 3. By June 26, you will have to take a call on whether you want to file a joint application - with your employer - to claim higher pension on your actual salary or not. However, you ought to be aware of various rules – and the lack of clarity around some of them. Also read: Want to opt for a higher pension contribution from EPF? Deadline is May 3 Here are some aspects you need to ponder over before exercising your choice. What does higher pension option mean? At present, if your basic salary (mentioned in your salary slip), on which provident fund contribution is calculated is, say, Rs 50,000, your employer deducts 12 percent of this amount – Rs 6,000 – as your employees’ provident fund (EPF) contribution. The organisation also contributes an equal amount towards your retirement benefits. A part of it (8.33 percent) is directed to the employees’ pension scheme (EPS), while the balance flows into your provident fund. However, it is calculated on the statutory wage ceiling of Rs 15,000. Therefore, out of your employers’ contribution of Rs 6,000, Rs 1,250 (8.33 percent of Rs 15,000) goes towards EPS. This amount joins the pool created under the EPS to pay the regular pension income to member-employees with at least 10 years’ service and their dependent family members. Now, after a Supreme Court verdict in...

CA Deepak Jauhari Employees’ Pension Scheme (EPS-95) offers pension on retirement, disablement, pension to widow and pension for nominees. This article explains how much EPS Pension you will get if you retire at the age of 58 years. Recently on 1 st April 2019 Supreme Court has given the decision that the pension to be paid on actual salary rather than the capped salary (Rs 15000 or Rs 6500 per month.) 1. Overview of EPS or Employee Pension Scheme The EPF pension or EPS is a pension scheme for the employees of organized sector. This pension scheme gives a guaranteed monthly pension after the retirement. Employee provident fund organization (EPFO) manages the pension account of all those who are contributing to EPF including private trust. The feature of Pension Scheme is as under: I. Out of the employer’s monthly contribution of 12%, an amount @ 8.33% goes into EPS and rest of the amount to EPF. Suppose an employee has salary( Basic + DA ) of Rs. 1,00,000 per month and employer contribution is 12% then Rs 1250 ( i.e. 15000*.8.33 % ) will go to EPS and rest of the amount Rs 10750 will go to EPF as employer contribution . II. Monthly contribution to EPS is restricted to 8.33% of 6500= Rs. 541 p.m. and from Sep 2014 Rs 1250 (8.33% of 15,000). III. Lifelong pension is available to the member and upon his death members of the family are entitled for the pension. IV. Pension is called Superannuation pension if one gets pension on retiring on attaining the age of 58 years V. An e...

About EPS The Employees’ Provident Fund Organization (EPFO) is in charge of managing the social security scheme known as Employees’ Pension Scheme (EPS), 1995. The pension scheme applies to employees of both government and private establishments, as well as international workers’ organizations, to whom the provisions of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 apply. The overall corpus of EPS wages comprises contributions made by employers at a minimum of 8.33% of the employee’s pay, and the central government adds 1.16% of wages not exceeding a threshold limit of INR 15,000. Remember, the employers’ total contribution of 12% of the pay is split into 8.33% to EPS wages and the remaining amount to employees provident fund account as EPF wages. India’s largest social security organization, EPFO provides a unique universal account number (UAN) to insured members to view the break of the EPF and EPS wages contributed in their provident fund account online, and the history of transaction of entries of amount, as well as share of contribution deducted from their salary during the entirety of their employment years. Related: Eligibility of Employee Pension Scheme (EPS) Insured members will be eligible to receive the EPS pension benefit once they attain 58 years of age, and retire from the service after completion of 10 years or more. Benefits of Employee Pension Scheme The EPS wages comprise an 8.33% contribution made by employers and the central governme...

By Sushil Jain, CFP While doing personal financial planning one should give top priority to retirement planning. One can manage all other goals through various loans but there will be no loan for retirement expenses. As there are very few or no assured return products for long-term horizon, EPFO offers a very suitable and useful solution for retirement planning. The EPS scheme’s higher pension benefits provide much-needed financial security and peace of mind as far as retirement expenses are concerned. This scheme also helps us to follow the principle of saving first and then doing expenses. Besides, it is a very attractive and beneficial scheme. The decision to opt for it or not should be taken only after a detailed analysis of the financial status of an individual. The higher contribution may be suitable in the following conditions. If you do have not any other sources of regular income after retirement like a personal pension, annuity plan or any other fixed passive income from investment or rent etc, a higher EPS pension may be beneficial. If you are not willing to plan and manage funds for retirement, then a higher contribution is advisable for you. It will give you peace of mind for your golden years. If you have already set aside the emergency fund then the higher contribution may be suitable for you, as a higher contribution reduces your liquidity which you may require in case of emergency. If you are able to manage your short and medium-term financial goals with l...

• Adani Enterp. 2451.15 ↑ 22.00 (0.91%) • Adani Ports 734.95 ↓ -1.45 (-0.20%) • Apollo Hospitals 4926.70 ↓ 0.05 (0.00%) • Asian Paints 3180.55 ↓ -31.70 (-0.99%) • Axis Bank 974.75 ↑ 12.65 (1.31%) • B P C L 359.45 ↓ -1.65 (-0.46%) • Bajaj Auto 4743.40 ↓ -57.25 (-1.19%) • Bajaj Finance 7037.15 ↑ 27.05 (0.39%) • Bajaj Finserv 1466.50 ↓ -0.90 (-0.06%) • Bharti Airtel 833.50 ↓ -2.50 (-0.30%) • Britannia Inds. 4878.75 ↑ 3.70 (0.08%) • Cipla 969.25 ↑ 3.85 (0.40%) • Coal India 227.65 ↓ -0.45 (-0.20%) • Divi's Lab. 3428.75 ↓ -70.95 (-2.03%) • Dr Reddy's Labs 4666.80 ↑ 17.40 (0.37%) • Eicher Motors 3581.30 ↓ -76.10 (-2.08%) • Grasim Inds 1715.75 ↑ 3.80 (0.22%) • H D F C 2652.90 ↓ -0.90 (-0.03%) • HCL Technologies 1109.75 ↓ -17.00 (-1.51%) • HDFC Bank 1610.60 ↑ 1.90 (0.12%) • HDFC Life Insur. 581.70 ↓ -12.20 (-2.05%) • Hero Motocorp 2899.30 ↓ -65.50 (-2.21%) • Hind. Unilever 2636.20 ↓ -43.70 (-1.63%) • Hindalco Inds. 415.05 ↓ -3.20 (-0.77%) • ICICI Bank 938.05 ↑ 0.15 (0.02%) • IndusInd Bank 1331.05 ↑ 27.20 (2.09%) • Infosys 1265.95 ↓ -16.85 (-1.31%) • ITC 438.45 ↓ -4.45 (-1.00%) • JSW Steel 748.50 ↓ -0.30 (-0.04%) • Kotak Mah. Bank 1872.00 ↓ -14.50 (-0.77%) • Larsen & Toubro 2363.00 ↑ 22.70 (0.97%) • M & M 1370.65 ↓ -10.40 (-0.75%) • Maruti Suzuki 9627.80 ↓ -30.80 (-0.32%) • Nestle India 22073.45 ↓ -75.45 (-0.34%) • NTPC 182.80 ↑ 0.75 (0.41%) • O N G C 154.25 ↓ -1.85 (-1.19%) • Power Grid Corpn 244.90 ↑ 3.25 (1.34%) • Reliance Industr 2481.95 ↓ -17.70 (-0.71%) • SBI Life Insuran 1232...

Every employee contributing to the Employees’ Provident Fund Organisation (EPFO) has two accounts – an Employee Provident Fund (EPF) account and an Employee Pension Scheme (EPS) account. Each month, employees contribute 12 per cent of their salary plus Dearness Allowance (DA) towards EPF. An equal amount is also contributed by the employer, out of which 8.33 per cent goes into EPS and the remaining 3.67 per cent is deposited into EPF. While this is how a pension scheme normally works, employees now have the option to increase their contribution towards EPS. Let’s find out more about this, and whether or not this is beneficial for you. What is a higher pension scheme? EPFO has recently announced changes to the higher pension scheme under EPS. As per the new provision, the additional 1.16% contribution from wages of members choosing a higher pension will be taken from 12% of the employer’s contribution. So, if the employee opts for a higher pension, the fund allocation to EPF and EPS will be adjusted, thus leading to a reduction in the EPF corpus but an increase in their EPS balance. Mutual Funds vs Real Estate: Which is better for long-term investors? As per the new rule, the employer will contribute 3.67% of the employee’s basic salary, up to the wage ceiling, and 2.51% (3.67% – 1.16%) of their basic salary, above the wage ceiling, towards the EPF. The employer will also contribute 8.33% of the employee’s basic salary, up to the wage ceiling, and 9.49% (8.33% + 1.16%) of t...

Story outline • Now, if you opt for full pension, the entire 8.33% of your pensionable salary will go into the EPS. • While your EPS contribution will go up, your contribution to EPF will fall proportionately. • Pension under EPS is fully taxable, just like annuity. So, you need to make an assessment about your tax liability after retirement. Currently, 12% of your pensionable salary goes into the EPF. Your employer matches this 12%. Prior to the SC ruling, 8.33% of the employer’s contribution or Rs 1,250, whichever was higher, went into the EPS and the rest went into EPF. Now, if you opt for full pension, the entire 8.33% of your pensionable salary will go into the EPS. So, while your EPS contribution will go up, your contribution to EPF will fall proportionately. To illustrate, if you are 58 and about to retire after 35 years of service, and want a full pension, you will have to shift the entire 8.33% of the employers’ contribution from EPF to EPS from the date you started working. So, if your salary grew at 7% per annum and is currently Rs 90,000, the additional contribution for the last 35 years will be to the tune of Rs 10.35 lakh, plus interest. The Supreme Court ruling in a nutshell • Arbitrary restriction of Rs 15,000 on pensionable salary has been removed. Now, you can opt for a higher pension, if your pensionable salary more than Rs 15,000. • Average pensionable salary will be based on 12 months’ pay and not 60 months’ pay as was the case earlier. • Employees fro...