EPF: The biggest drawback of opting for higher pension is that a part of your EPF corpus will be re-allocated to the EPS scheme from the date of joining to get higher pension. Transferring EPF money to EPS will reduce the benefit of compounding you have earned over the years as an EPF member.
PF Scheme: The recent guidelines of EPFO (Employees’ Provident Fund Organisation) states that eligible employees who had earlier not opted for higher pension contribution under EPS can now do so. However, there are some reasons why you may want to avoid opting for higher pension contribution. Let’s know about it…
Pension scheme
The biggest drawback of opting for higher pension is that a part of your EPF corpus will be reallocated to the EPS scheme from the date of joining to get higher pension. Transferring EPF money to EPS will reduce the benefit of compounding you have earned over the years as an EPF member. Hence, before going for the higher pension option, you must do your due diligence.
Lump sum payment
All the money in PF account is yours. In case of your death, the entire amount is given to your nominee/legal heirs. But on death under EPS, the spouse will get only 50 percent of the pension. There is no lump sum payment in EPS. Hence you should consider your life expectancy before going for higher pension.
EPS
EPS does not provide any lump sum payment. It gives you pension on the basis of your accumulated corpus. Instead of opting for higher pension under EPS, you can consider other government supported options like NPS which will provide market linked returns and lump sum amount to buy annuity on retirement. Apart from this, NPS contribution also provides an additional deduction of Rs 50000 over and above the deduction of Rs 1.5 lakh available under section 80C.
Interest Earned
There is a lack of flexibility in the EPS scheme. Also, the interest earned through EPS amount is not the same as that of EPF, which is usually higher.
Early Retirement
For those who are planning for early retirement, opting for higher pension of EPFO may not be good as a person is eligible for pension under EPS only after completing 10 years of service and 58 years of age goes.
