The EPS has some beneficial social security features built into it.
When you are part of the Employees’ Provident Fund (EPF) scheme, besides your provident fund corpus on retirement, you get a monthly pension for life from the Employees’ Pension Scheme (EPS). Here are some pointers to understand the EPS better.
PENSION CALCULATION
Your EPS account is primarily funded from your employer’s contribution to your retirement corpus. Most employers match their employees’ contribution to the EPF. So, every month, when 12 per cent of the Basic and Dearness Allowance (DA) components of your salary get salted away to the EPF account, your employer makes an equal contribution. While the deduction from your salary goes entirely to build the EPF corpus, a part of the employer’s contribution (8.33 per cent of the Basic and DA) goes towards your EPS account. For calculations under the EPS, the Basic and DA amount is restricted to Rs 6,500 a month. So, from the employer’s contribution, the maximum amount which goes to your EPS account each month is Rs 541 (8.33 per cent of Rs 6,500). The Union Government also chips in with a contribution of 1.16 per cent of your Basic and DA.
Unlike the EPF, your EPS balance does not earn any interest. The pension you get is determined by the number of years of pensionable service (effectively the number of years of contribution) and your pensionable salary (average Basic and DA in the last 12 months of service). Here too, there is a cap of Rs 6,500 on the pensionable salary. The monthly pension is computed as (pensionable salary multiplied by pensionable service)/70.
You are eligible for pension only if you have served at least 10 years. The pension usually starts after the age of 58. At this point, if you have served at least 20 years, your pensionable service is increased by two years. But pensionable service cannot exceed 35 years. So, the maximum pension you can get is Rs 3,250 a month - (35 multiplied by 6,500)/70.Rather than after 58, you can opt to draw pension once you turn 50. However, to be able to do this, you should not be in service. Also, an early start will mean a lower amount – the pension will be reduced by four per cent for every year your age falls short of 58.
TRANSFER/EXIT OPTIONS
If you have been a member of the EPS for at least six months and for less than 10 years, you are allowed to exit the scheme when you quit or change jobs. The withdrawal benefit on exit is computed by multiplying your monthly wage in the year of exit and rates prescribed in ‘Table D’ of the EPS. This will be nearly equal to the total contributions made by your employer.
The other option is to get a Scheme Certificate by applying to the EPF Commissioner through your employer. This will enable you to transfer your EPS account (with the benefit of the accumulated pensionable service) to a new employer, or to draw pension in the future. But once you complete 10 years with the EPS, the option of withdrawal is not available, and you will have to get a Scheme Certificate to retain your pension benefit.
WORTH IT OR NOT
The trouble with this scheme is that the wait is long and the pension amount meagre – a maximum of Rs 3,250 a month for service as long as 35 years. If the contributions to your EPS account are invested in other safe instruments and used to buy an annuity on maturity, you could get a pension twice to thrice what you would get from the EPS. That said, the EPS scores on some fronts. One, it goes hand-in-hand with the EPF, one of the best and least risky ways to build your retirement nest.
Also, the EPS, being in the nature of a pooled account, has some social security features built into it. On permanent disablement, an employee begins getting pension. Also, in the event of his death, the employee’s spouse and two children (till they reach the age of 25) are eligible for some pension – even if just one month’s contribution has been made to the EPS. The amount, even if small, could count for you or your family, on retirement, disablement or death.
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