{"id":1785,"date":"2012-03-24T17:00:33","date_gmt":"2012-03-24T17:00:33","guid":{"rendered":"http:\/\/www.apnaplan.com\/?p=1785"},"modified":"2014-06-19T05:23:12","modified_gmt":"2014-06-18T23:53:12","slug":"employee-pension-scheme-eps-how-good","status":"publish","type":"post","link":"https:\/\/www.apnaplan.com\/employee-pension-scheme-eps-how-good\/","title":{"rendered":"Employee Pension Scheme (EPS) \u2013 How good?"},"content":{"rendered":"
If you have looked at your EPF (Employees\u2019 Provident Fund)<\/strong> details you might have wondered about deduction of Rs. 541 per month from your company\u2019s contribution to EPF.<\/p>\n Here is the explanation:<\/p>\n Here is an example of how EPF & EPS is calculated:<\/strong><\/p>\n Suppose your basic salary Rs. 10,000 per month.<\/p>\n Since the basic salary is more than Rs. 6,500, only 8.33% of Rs. 6,500 (i.e. 541) is contributed to EPS.<\/em><\/p>\n First lets talk about the similarity between both \u2013 EPF & EPS. Both are Retirement Schemes compulsory for private company employees (employers with more than 50 employees) and are managed by EPFO (Employees\u2019 Provident Fund Organisation)<\/strong>. In case of EPF you get certain percentage interest on your deposits, which are decided by EPFO board every year<\/a>. Whatever is the amount accumulated in this EPF account by the time you retire, you receive that as a lump sum.<\/strong><\/p>\n In case of EPS, you get a monthly pension after you retire which is based on a formula.<\/strong> The good thing about this pension is, your wife\/dependents continue to get this monthly pension even after your death subject to certain conditions.<\/p>\n The next logical question is how much pension would you get under EPS scheme? It\u2019s based on a formula:<\/p>\n Monthly Pension = (Pensionable salary X Pensionable service) \/ 70<\/p>\n For e.g. you join a private sector company at the age of 25 and continue working there till retirement at the age of 60; with your basic salary always exceeding Rs 10,000 per month. Here is what your monthly pension amount would be:<\/p>\n Pensionable salary = Rs. 6,500 [even though your basic salary is Rs. 10,000 but there is an upper limit of Rs. 6,500]<\/p>\n Pensionable service = 60 \u2013 25 = 35 Years<\/p>\n So, Monthly Pension Amount = (6500 x 35) \/ 70 = Rs. 3,250<\/p>\n You would receive this amount of Rs. 3,250 as your monthly pension for your life time and this would continue even after your death to your dependents.<\/strong><\/p>\n This brings us to the next question \u2013<\/p>\n Is EPFO justified in paying such a small pension for your contribution of Rs. 541 per month for 35 years?<\/p>\n Let\u2019s do some number crunching and get the answers.<\/p>\n Had your contribution not gone compulsorily into EPS, it would have gone to your EPF (or VPF<\/a>) account and paid to you in bulk at the time of retirement. Assuming a rate of interest of 8.5% for entire tenure of EPF<\/a>, the monthly contribution of Rs. 541 for 35 years (or 420 months) would grow to Rs.14,14,147.<\/strong><\/p>\n You can withdraw this amount and invest in annuity options available with Insurance companies for regular income.<\/strong> For simplicity I have chosen Jeevan Akshay VI Annuity plan from LIC (Life Insurance Corporation).<\/strong> Here you can invest lump sum amount and receive fixed amount every month. You can access the premium payment and benefit calculator on LIC website here<\/a>.<\/p>\n I choose following options to keep the annuity plan similar to EPS benefits:<\/strong><\/p>\n\n
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EPF & EPS Calculation:<\/h2>\n
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What is EPF & EPS?<\/h2>\n
How much Monthly Pension under EPS?<\/h2>\n
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Calculating Monthly Pension Amount:<\/h2>\n
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