There has been much noise around choosing a higher pension for a while now. Latest, the Labour Ministry has notified the extension of the last day to June 26, 2023, just one day prior to the previous last date, May 3, 2023, for submission of request for higher pension request. The Employees’ Provident Fund Organisation (EPFO), the body which governs EPF and EPS, extended the date to provide ample time and opportunity for the members to exercise their options.
Let us see what EPS is and who can avail of higher pension.
What is EPS?
The Employee Pension Scheme (EPS) is a social security scheme for contributing members to get a secured pension upon retirement at 58 years of age. The scheme was launched in 1995.
The employees enrolled in the Employees’ Provident Fund (EPF) scheme are automatically enrolled in the EPS scheme. The minimum monthly pension is Rs 1,000.
Eligibility For Availing Benefits Under EPS
To avail of the pension benefits under EPS, the person should be a member of the EPFO. The employee has to provide service to the organisation/s for at least 10 years. The member must have reached the age of 58 years or in case of early retirement, from the age of 50.
How Much An Employee And Employer Can Contribute?
Both employee and employer contribute 12 per cent of the employee’s basic salary and dearness allowance to the EPFO. The employee’s full contribution goes towards EPF, whereas the employer’s contribution is divided between EPF and EPS in the ratio of 3.67 per cent and 8.33 per cent, respectively.
Earlier, EPFO would calculate the pension considering the statutory wage ceiling of Rs 15,000, but after the Supreme Court decision in November 2022, those who were members of EPS can opt for a higher pension based on their actual wage instead of the statutory wage limit i.e., Rs 15,000. All EPS contributions can be done only by the employer. Also, note that the increased contribution in pension would mean a decrease in EPF corpus for the employee.
Who Are Eligible For Higher Pension?
Notably, the choice of opting for a higher pension is only for eligible members, i.e., the employees who were members of the Employees' Pension Scheme (EPS) as on September 1, 2014.
“According to the Supreme Court order, following category of employees cannot opt for higher pension, 1) Employees who had retired prior to September 1, 2014, without exercising their option for higher/ uncapped pension under 11(3); and 2) Employee who had joined on or after September 1,
2014, with a salary over Rs. 15,000 per month,” says Gopal Bohra, partner, direct tax, N.A. Shah Associates.
Withdrawal And Monthly Pension:
EPS is the monthly payment to the pensioner from the amount contributed over the years till the time they are alive. After retirement, one gets the EPF corpus in a lump sum with interest. But for the EPS, one receives a regular pension every month after retirement instead of a lump sum. The regular pension starts after the member attains 58 years of age or after 50 in case of early retirement.
One can withdraw the entire EPS amount in case a total of 10 years of service is not completed.
In case of the member’s death while in service, the family gets the pension benefits.
Widow Pension: After the member’s death, a pension is given to the spouse as a widow/widower pension at 50 per cent of the eligible amount. Where the member dies while in service, or after the date of exit but before attaining 58 years of age, the widow will get full pension, but where the member dies after commencement of pension, the monthly pension will be 50 per cent of the pension amount thereof.
Child Pension: The surviving children, a maximum of two, can avail of take benefits of a child pension which is 25 per cent of the widow pension. It is in addition to the monthly widow/widower pension.
Orphan Pension: Where the member dies, and there is no surviving widow, children are eligible to get a pension at 75 per cent of the widow’s pension until they are 25 years of age. This can be availed by two children.
Reduced Pension: If the member is more than 50 years but has not reached 58 years, the pension can be availed at a reduced rate.
EPS offers a monthly and secure government-guaranteed pension. But one thing to keep in mind is that while the PF one gets after retirement is tax-free, the monthly pension is taxable.
