Employee Pension Scheme: With the new rules of EPFO, you can get the benefit of more pension. Let’s know everything about this.
Employee Pension Scheme: Now you can get more pension benefit from your Employee Pension Scheme account. For this, it has to be understood that how you can increase your pension with the new rule of EPFO. Is there any other option apart from this, by which you can increase your pension. For this, you have to understand the complete formula of pension of EPFO. For this we are with Mrin Agarwal, Founder of Finsafe and Amit Kukreja, Founder of Amitkukreja.com
What is EPS?
- Pension scheme for employed people
- Every month some part of the income is deposited in EPFO
- Pension benefits for private sector employees
- EPS-95 scheme was implemented in 1995
EPS-How to get benefit?
- Pension to the family on premature death of the pensioner
- Nominee gets the benefit of pension if there is no family
- Benefits are available on completion of 10 years of service
- After completion of 10 years, the amount can be withdrawn from the PF account.
EPF- How much contribution every month?
- Employee Contribution to EPF- 12% Basic Income+DA
- Only 12% contribution from the employer
- Total contribution of 24% in EPF account every month
- Of the 12% employer contribution, 8.33% goes to EPS
- EPS- Employee Pension Scheme
- 3.67% of 12% goes to the employee’s EPF account
EPS Contribution – Existing Rules
- Pension calculation on ₹15000 basic income
- Pensionable income cap fixed at ₹15000/month
- ₹ 1250 per month in EPS account with an income of ₹ 15000
- 8.33% of the employer’s contribution to the employee’s pension fund
EPS Contribution – What are the new changes?
- Any amount can give 8.33% of basic income in EPS
- Contribution to EPS account based on current income+DA
- Rules changed in the recent decision of the Supreme Court
- Now the rule of capping of ₹ 15,000 to get pension is over
Higher Pension – Who is Eligible?
- EPS members can avail before 1st September 2014
- Contributing continuously to EPF since 2014
- Those who contribute only up to 15000 monthly income in EPF are not eligible
EPS-How to get monthly income ₹ 40 thousand pension?
- According to the existing rule, the income of ₹ 15000 will be calculated
8.33% of ₹15000 i.e. ₹1250 will go to EPS every month - According to the new rule, the income of 40,000 thousand will be calculated
- ₹ 1468 deposited in EPF, ₹ 3332 in EPS under higher pension rule
Calculation of excess pension
- Tenure – 35 years
- Current rule- (15000*35)/70= 7500/month
- New rule- (40000*35)/70=20,000/month
- EPS-Advantages of Higher Pension
- Benefit of higher pension on retirement
- More benefits on having more basic income
- Social security will be strong after retirement
Higher pension – choose or not?
- tax on pension
- No option to go back once you choose a new system
- Only 50% pension to the family on the death of the pensioner
Other options to get pension
- NPS- The best option to get pension
- NPS-National Pension Scheme
- 10% contribution of salary tax free
- Exemption on 14% contribution to government employee
- 80CCD deduction on employer’s contribution
- 80C benefit for employee contribution up to ₹1.5 lakh
- Additional ₹ 50 thousand rebate under 80CCD
- Possible to withdraw 60% of the corpus on retirement
- 60% withdrawal tax free, rest invested in annuity
- NRIs can also invest
Annuity plan
- Regular income is assured in retirement
- Annuity a type of insurance product for regular income
- Annuity is usually a payment of life insurance or pension
- The person receives the amount in installments or in lump sum
- Eliminates the fear of losing your savings in old age
- Policy taker pays lump sum
- Some amount is available immediately or in installments as per the requirement
Annuity Plan – How Many Types?
- There are two types of annuity
- One – Immediate Annuity, Second – Deferred Annuity
- Deferred Annuity Plan- Lump sum investment
- Deferred Annuity – Monthly pension on retirement
- Payments start immediately after investing in Immediate Annuity
- Immediate annuity – close to retirement, then a good option
- Deferred can be converted into immediate annuity
- No tax benefit to the policyholder on annuity
Benefits of pension plan
- Low risk, good option for regular income
- Fixed pension for life
- If you start early, you will have to pay less premium.
- Can start at any age
- Full investment amount to the nominee on death
