Higher Pension: Employees’ Provident Fund Organization (EPFO) has given its account holders the option of getting higher pension after the order of the Supreme Court. Interested employees can opt for this scheme till March 3, 2023.
Everyone must be feeling good after hearing higher pension, but there will still be doubt in the minds of most of the employees regarding this. If you are also confused about the EPS 95 scheme, then you can clear all your confusion here.
EPS 95: Ever since the order of the Supreme Court regarding Higher Pension, there is a lot of confusion among the employees. Different types of questions are also arising in his mind. First of all, the question is that after choosing the new option, how will his pension increase and will it affect his in-hand salary? Which employees can choose this option? We have brought answers to all such questions from the words of experts-
Question – What is the EPS-95 which is discussed in reality?
Investment advisor Balwant Jain said that a new rule was implemented in 1995 to provide pension benefits to private sector employees (who are EPFO account holders) after retirement. This is called EPS-95. Under this, earlier the maximum wage for contribution to the pension fund was considered to be Rs 6,500.
That is, no matter what your salary is, only 8.33 percent of 6,500 will go to the pension fund. Later it was increased to Rs 15,000. That is, no matter what your salary is, only 8.33% of Rs 15,000 will go to the pension fund. But, after 2014, this cap was abolished and the employee got the exemption of contributing 8.33 per cent to the pension fund on the total amount of his basic and DA.
Question – Who and how contributes to the Pension Fund?
Every member of Employees Provident Fund Organization (EPFO) has 2 accounts. One is Employees’ Provident Fund (EPF) and the other is Employees’ Pension Scheme (EPS). Every month 12% amount is deducted from the basic and DA of the employee and deposited in EPF.
While his employer also puts 12 percent of the employee’s basic and DA. But, the entire contribution of the employer does not go towards EPF. Out of the employer’s contribution, 8.33 per cent goes to the EPS account, while 3.67 per cent goes to the EPF account.
Question – What was there earlier, what has changed now?
Balwant Jain says that this entire change will have no effect on the contribution made by the employee. The entire change has to be in the employer’s contribution share. It would be better to understand it with a little calculation. Earlier, contribution to EPS was made only on the maximum wage of Rs 6,500. This means that if your basic and DA salary was Rs 1,00,000, then 12% of it ie Rs 12,000 was directly deposited in the EPF account on behalf of the employee.
At the same time, 8.33 percent of Rs 6,500 i.e. Rs 541.45 was put in EPS by the employer and the rest of the money went to the EPF account. Later, when the wage increased to Rs 15,000, the employer’s contribution to EPS was 8.33% i.e. Rs 1,249.50 and the rest went to the EPF account. But, from 2014, the wage cap on contribution to EPS was abolished and an option was given to put 8.33% of the total money of your basic and DA.
Question – If I opt for higher pension, will my employer have to deposit more money for me?
This will not happen at all. There is neither going to be any burden on the employer nor on the employee. Simply, there will be a change in the amount deposited in the EPS and EPF account by the employer and it will be quite high.
How, suppose the total amount of your basic and DA is Rs 1,00,000, then now the employer will contribute 8.33% i.e. Rs 8,330 to the EPS fund, while only 3.67% i.e. Rs 3,670 will go to the EPF.
Question – More pension, means how much?
This is the most important question of this whole change and its answer is also very interesting. In fact, earlier the pension for the PF account holder was calculated considering the salary of Rs 6,500 as the basis. Its formula was- pensionable salary x years of service / 70. If a person has worked for 35 years, then on this formula he will be entitled to a pension of Rs 3,250 after retirement.
EPF wage increased to 15 thousand, then on this formula the pension increased to Rs 7,500 a month. That is, if you retire after 35 years of service, then the monthly pension will be Rs 7,500. Later, the Supreme Court changed its formula and considered the average salary of the last 60 months of the job as pensionable salary. What will happen if we go by the existing formula-
- Suppose the average salary for the last 60 months of your job is Rs 1 lakh.
- Now the calculation will be 1 lakh times the total years of service. It will be divided by 70.
- On this formula your pension will be made 50 thousand rupees.
- Now don’t understand that earlier Rs 7,500 pension was being made and now it will be Rs 50,000. That means Rs 42,500 more.
Question – If I opt for higher pension, what will be the impact on my monthly take home salary?
The expert has a clear answer about this – none. There will be no change in the salary coming in the hands of the employee.
Question – Then how will the employee be affected?
Yes, it will definitely affect your retirement fund. When the employees retire, the amount deposited in their PF account will be reduced due to opting for higher pension. This means that the lump sum amount coming in your hand will decrease, but the pension amount will increase.
Question – Can I enroll to get higher pension?
It is very important to know one thing here that this scheme is not for all the employees. Only those employees who have been members of EPFO before 2014 can opt for it. Earlier also EPFO had opened its window for 6 months to opt for it, but has now given the option to opt for it till March 3, 2023. Therefore, if you are also interested in getting more pension, then you can choose it fearlessly.
Question – What will be the loss if I do not enroll?
See, profit and loss can be different for every employee. Here you can understand it with 2 types of calculation.
First calculation – (without higher pension)
- Employer’s contribution to EPF on salary of Rs 1 lakh is Rs 10,750 per month i.e. Rs 1.29 lakh in a year.
- In 35 years of service, the employer’s total contribution to PF is Rs 45.15 lakh.
- Assuming an average interest of 8 percent on this, the total amount will be Rs 1,94,92,177 (1 crore 94 lakh, 92 thousand 177).
- That is, on retirement, an amount of Rs 1,94,92,177 will come in your hand from the employer and you will get a pension of Rs 7,500 every month.
Second Calculation – (With Higher Pension)
- Employer’s contribution to EPF on salary of Rs 1 lakh is Rs 3,670 per month i.e. Rs 44,040 in a year.
- In 35 years of service, the employer’s total contribution to PF is Rs 15,41,400 (15 lakh 41 thousand 400).
- Assuming an average interest of 8 percent on this, the total amount will be Rs 66,54,639.
- That means you will get Rs 42,500 as pension every month by contributing Rs 1,28,37,538 (1 crore 28 lakh 37 thousand 538).
Note – If you convert Rs 1,28,37,538 into an FD with 6% return, then you will get Rs 64,187 every month only as interest and your entire money will also be safe. However, this entire calculation has been done on the same salary for 35 years, so that you can understand easily. Secondly, nothing can be said about what will be the return on FD in future.
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