The deadline for individuals to submit an application for a higher pension under the Employees’ Pension Scheme (EPS) is 3 March 2023. The Employees’ Provident Fund Organization (EPFO) members as of September 1, 2014 would now be allowed to choose a higher pension based on their actual basic wages. This guideline has been announced by EPFO for old members to apply for higher pension and make higher contributions towards EPS at 8.33 percent instead of the maximum ceiling of ₹15,000 pensionable salary per month. So let’s know from industry experts, whether employees should opt for higher pension or not.
Key benefits of choosing higher pension under EPS
Kuldeep Parashar, Co-Founder at PensionBox said “As the world of work continues to evolve, it is increasingly important for individuals to take control of their financial future. This is particularly true when it comes to retirement planning, and the EPFO offers a valuable opportunity-cum-commitment to ensure that the individuals who are looking to secure their financial future in their golden years have the appropriate resources. By allowing eligible employees to contribute on higher wages prior to 2014, the EPS scheme enables individuals to increase their retirement corpus, which can provide financial stability during their golden years.We are passionate about creating awareness and hence, with a user base of 1 lakh individuals, we are well-positioned to help spread the word.”
“We believe that everyone contributing to the fund for many years and looking for a way to maximise their retirement savings have an excellent opportunity to secure their financial future, and that’s why we are committed to helping our users take advantage of the benefits that come under the EPS scheme. As the world becomes increasingly uncertain, it is essential to have a robust retirement plan in place. The EPS scheme’s higher pension benefits provide a much-needed safety for EPFO members, giving them peace of mind that comes with financial security and ensuring that they are well-prepared for whatever the future beholds,” said Kuldeep Parashar.
Dr.K.Hema Divya, HoD, Dept of MBA, KL Business School said “The revised EPFO regulations were released two weeks prior to the Supreme Court’s four-month deadline. With this new regulation, we will be able to have a higher pension with better contributions since the pension will be based on actual basic wages rather than on limiting the statutory wage ceiling. The key benefit of choosing a higher pension is that it enables you to accumulate a pension corpus, which will provide you with a guaranteed income after retirement. This is especially helpful if you have problems saving money, need a steady income, and have a tendency to overspend.”
EPS and EPF contribution
Nikhil Vikamsey, Senior Partner Alpha capital said currently the employees and the employer contribute 12% of their basic salary and dearness allowance to their EPF account. Of the employers 12% contribution 8.33% goes to Employee Pension Scheme and 3.67% to EPF. However, this 8.33% EPS contribution is capped at maximum amount of ₹15000/- even when the employee draws a higher salary.
The Supreme court in its recent announcement has cleared that employees who were part of the EPF before 01/09/2014 but could not understand or exercise the joint option within 03/03/23 for such employees a higher EPS contribution will be calculated from the date of their joining.
For Example:
Mr. ‘X’ became a member of the EPF in 1998.
He has not exercised the joint option.
His salary increased to Rs.50,000 in 2015.
His employer contributes Rs.6,000 (i.e. 12% of his basic wage) towards EPF.
Of the employer’s contribution, Rs.1,250 (i.e. 8.33% of Rs.15,000; the statutory wage cap) will go to the EPS.
The remaining Rs.4,750 (i.e. Rs.6,000 – Rs.1,250) will go to the EPF.
He exercises the joint option within 03/03/2023 as per the Supreme Court judgement since the EPS contribution is above the statutory wage cap of Rs.6,500.
After submitting the joint option, his employer will contribute Rs.4,165 (i.e. 8.33% of Rs.50,000; his actual salary) and Rs.1,835 (Rs.6,000 – Rs.4,165) towards EPF.
The EPFO will calculate the monthly EPS amount of 8.33% of the actual salary and transfer the difference amount from the EPF to the EPS.
In such cases, the EPFO will return to the joining date or 01/11/1995, whichever is later, and transfer the difference from the PF account to the EPS account. But, the higher pension contribution will reduce the EPF lumpsum corpus that the employee gets upon retirement.
Should you opt for it or not?
Nikhil Vikamsey said “It benefits individuals who want a higher monthly pension but do not require a huge lump sum upon retirement. The higher pension contribution will increase the monthly pension amount but reduce the EPF lump sum given to employees upon retirement. Thus, individuals who have other investments and will receive a lump sum upon its maturity can opt for the higher pension scheme. However monthly pension is taxable, but lumpsum EPF amount given after retirement is tax exempted.”