After the current supreme court docket ruling on the Worker Pension Scheme (EPS), EPFO subscribers, as of 1st Sep 2014, can retrospectively contribute 8.33% of their primary + DA to the EPS by way of a deduction from the EPF.
The choice to do that has been opened solely to a bit of workers and is predicted to be expanded quickly. On this article, we will not get into the nitty-gritty of the judgement or eligibility criterion.
As a substitute, we will concentrate on what eligible workers ought to do. Earlier than we start, it is very important level out that this selection just isn’t eligible to those that joined the EPF after 1st Sep. 2014 as they aren’t a part of the EPS.
- A considerable sum of a number of lakhs must be paid from the EPF to the EPS to avail larger pension. This can interrupt the compounding of the EPF corpus for individuals who nonetheless have a couple of years of service left.
- Suppose you pay the lump sum and go for the next EPS pension, estimate what it will be on the time of retirement.
- As a substitute, should you let that cash compound in EPF and use it to buy a govt bond by way of RBI Retail Direct upon retirement, how a lot can be the curiosity payout? For instance, I used RBI Retail Direct to purchase authorities bonds and create an revenue supply.
- Suppose the RBI bond payout just isn’t a lot completely different from the EPS pension. In that case, the RBI bond is the superior choice as a result of the bonds may be held collectively together with your partner in both or survivor mode, and the identical curiosity payout will proceed for the lifetime of each holders, and the cash will go to heirs.
- Distinction this with the EPS pension, the place the corpus can’t be recovered; worse, the payout to the surviving partner will drop by 50% upon the subscriber’s demise.
- Not choosing the improved EPS pension has one other benefit. There may be further liquidity to go for a pension at a later age. Insurance coverage annuity payouts after 70 are sometimes extra profitable than authorities bond coupon charges. See: I would like a pension: Ought to I purchase an annuity or a govt bond?
Our opinion is for these within the highest tax slab, not choosing the improved EPS pension is extra useful. There’s a larger corpus to work with to fight inflation by way of a bucket technique, and even when one desires fastened revenue/pension, authorities bonds are extra advantageous.
The upper EPS pension choice may presumably profit these in decrease tax slabs, however this must be selected a case-by-case foundation, relying on the person’s circumstances. On the very least, we urge readers to not be in a rush to go for the upper EPS pension and evaluate the abovementioned eventualities.
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