Higher Pension: After the order of the Supreme Court, the Employees’ Provident Fund Organization (EPFO) has opened the option of higher pension. Now PF account holders can choose a higher pension system.
However, there is an important question in the minds of the people that how will this be possible. Will the employees be charged an additional amount for this or will the EPFO itself compensate for it?
EPS 95 Higher Pension : Last few days more pension and EPS 95 are in discussion. You must have also received an email from your HR department to choose the pension option. Those who are subscribers of EPFO before 2014 can choose one of the 2 options.
But the biggest dilemma is which option to choose. Even before that the problem is that what is this EPS 95 and how the pension is going to be affected under it. People are unable to understand that how will they get more pension? Will the money be deposited in the pension fund by deducting some of the salary coming in their hands or will it be increased in some other way?
Apart from this, there is also a question that which employees can choose it. If choose then why choose? What harm can happen if you don’t choose? If you are also in any dilemma regarding EPS 95 then do not worry. You are at the right place and we have tried to answer all your questions with the help of Balwant Jain, a big expert in the investment world. On the basis of this information, you will be able to decide whether you have to opt for higher pension or not.
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 employee’s basic and DA and deposited in EPF, while his employer also puts 12% 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 – 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 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.
– Your pension will be made on this formula 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.
