Additional extension of the deadline to go for the next pension beneath the Worker Pension Scheme (EPS) has been prolonged to June 26, 2023. So, the subscriber of EPFO has a month to resolve whether or not to go for the next pension scheme from EPS. The target of this text is that will help you decide the identical.
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What’s Worker Pension Scheme (EPS)? All salaried people contributing to EPF (Worker Provident Fund) are additionally a subscriber of EPS, the place staff contribute 12% of their fundamental wage + D.A. (dearness allowance) in the direction of the EPF. Of the employer’s 12% contribution, 8.33% goes to the Staff’ Pension Scheme (EPS) topic to the max contribution of Rs. 15,000 every year, i.e., Rs. 1,250 p.m., and three.67% to the EPF.
An worker can withdraw EPF fully at retirement (agr-58) tax-free; nonetheless, EPS is paid as a month-to-month taxable pension. So, far anticipated pension from EPS was decrease as a result of EPS contribution being capped at 15,000 p.a.; that’s why choosing the next pension scheme might look enticing. Let’s discover.
Learn how to go for the next pension in EPFO?
Staff who’re members of the EPS-95 and are in service/retired after 2014 can go for the next pension by submitting a joint possibility utility with the regional PF commissioner earlier than June 26, 2023.
Step 1: Staff ought to go to the EPFO portal
Step 2: Click on on the “Pension on Greater Wage” – A web based utility to validate Joint Possibility.
Step 3: Fill within the particulars and submit the shape.
The EPFO will digitally register the applying and supply the receipt quantity to the applicant. Put up that, EPFO will ship it to the respective employer to confirm for additional processing.
Who’s eligible to obtain the next pension in EPFO?
The next staff are eligible for the next pension in EPFO:
(a)Staff retired earlier than 01-Sep-2014
- Who opted for the next pension beneath para 11 (3) of the EPS-95.
- For whom the EPFO rejected the choice exercised beneath para 11(3) of the EPS-95.
- Whose EPS contribution was above the utmost restrict of Rs.5,000 or Rs.6,500.
(b) Staff retired/working after 01/09/2014 –
- Who have been members of the EPS-95 and didn’t go for the next pension.
- Whose pension contribution was above the utmost restrict of Rs. 5,000 or Rs. 6,500.
Learn how to calculate EPF larger pension?
The system for calculating EPF larger pension is as follows:
Month-to-month pension quantity = (Pensionable wage X pensionable service)/70.
How a lot are you able to count on pension current through the next pension scheme?
Case-1: Assume “X” is 26 and began working in 2022 with fundamental pay of Rs. 43,000. “X” desires to retire at age 58 (yr 2055), which suggests the full anticipated service yr shall be 33 (Age 58 – 26).
a) With the prevailing EPS plan capped at an annual contribution of Rs. 15,000
Month-to-month pension quantity = (Pensionable wage X pensionable service)/70.
Anticipated month-to-month pension = (Rs. 15,000 x 33)/70 = Rs. 7,071
b) With the next EPS plan, what would be the pension?
Assumption: Base wage of Rs 43,000 elevated at 5% p.a.
Common base wage within the final 5 years = Rs 1,95,601
Anticipated month-to-month pension = 1,95,601X 33/70 = Rs. 92,212
Distinction: Rs. 85,141
The distinction in pension is big.
Case-2: Assume “Y” is 36 and began working in 2022 with fundamental pay of Rs. 43,000. “Y” desires to retire at age 58 (yr 2055), which suggests the full anticipated service yr shall be 33 (Age 58 – 26).
As “Y” have already served ten years, there shall be a shift of corpus from EPF to EPS.
EPFO, within the round dated Could 11, 2023, got here out with the calculation methodology to determine the quantity that shall be shifted from EPF to EPS if you happen to select to use for the next pension.
Keep in mind, the upper pension comes at the price of a decreased EPF corpus, payable tax-free to an worker upon retirement.
Per the final revealed valuation deficit within the pension fund for the yr ended March 31, 2017, was Rs 15,000 crore, which is a worrying issue for me. It’s not solely about getting the next pension but additionally if one decides to shift a extra important chunk to EPS by possibility larger pension possibility.
Factors to contemplate earlier than you go for the next pension beneath EPS
1) Decreased pension to partner & baby: Subscribers are eligible for a full pension after the graduation of the month-to-month pension till they’re alive. By all means, all of the EPS subscribers ought to dwell longer and proceed to get a full pension. Nonetheless, after the subscriber’s loss of life, the partner receives solely 50% of the retirement; after the partner’s loss of life, a most of two youngsters get 25% every till they’re 25.
2) The pension will depend on the final 60 months (5 years) of the bottom wage:
- Your pension shall be decrease if you happen to plan to take a lighter job with lesser pay near retirement.
- In case you plan to retire early, your pension shall be decrease as a result of fewer service years, and you’ll solely entry a pension when you flip 50.
3) No pension for early retirees: The retirement pension is obtainable provided that the worker completes ten years within the scheme. Those that don’t can withdraw their EPS contributions.
Is the upper pension scheme useful?
It could possibly profit people near their retirement (5 years or much less) and who’ve gathered giant sums in different investments towards retirement corpus. The upper pension contribution will enhance the month-to-month pension quantity however cut back the EPF lump sum payable to an worker upon retirement. Additionally, observe that the month-to-month pension is taxable, however the lumpsum EPF quantity payable on retirement is tax-exempt.
Younger subscribers- You will have loads of choices to create your pension stream.
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