The Employee Pension Scheme (EPS) is an integral part of the Indian monetary landscape. Essentially, this is a visionary initiative aimed at providing post-retirement financial security to millions of employees across both public and private sectors. Post-retirement, life can be difficult without a steady income. To counter this challenge, the Indian government put in place EPS to ensure continuity of income even after an employee has stopped working.
Key Features of EPS
EPS is part of the Employee Provident Fund (EPF) and comes under the purview of the Employee Provident Fund Organisation (EPFO). Every month, a particular portion of your salary is directly routed towards your EPF, which includes both EPS and the Provident Fund (PF). As an employee, you contribute 12% of your basic salary towards the EPF, and an equivalent amount is added by your employer. However, out of the employer’s contribution, 8.33% is transferred to the EPS account while the remainder goes to the PF.
The EPS benefits are available to those employees who’ve completed a minimum of 10 years in service. The pension starts from the age of 58 and can be reduced to 50 if the individual is not in service. However, an employee cannot claim the benefits before reaching 50 years of age.
The amount of pension you will receive under EPS depends on several factors like the number of years of service and the last drawn salary. The formula to calculate the pension is Final pensionable salary X pensionable service/70. Here, the pensionable salary is capped at ₹15,000 and pensionable service is the number of years you have worked.
There are also provisions for nominees under EPS. In the event of an untimely death, the spouse and two children below 25 years of age are eligible to claim the EPS benefits. In the case of the employee being unmarried, the nominee receives the benefits.
Another prominent benefit of EPS is its portability. If you switch jobs, the EPS continues without interruption. The pensionable service years add up, allowing you to reap its benefits at the time of retirement.
Comparison with Atal Pension Yojana (APY)
An alternative to EPS can be the Atal Pension Yojana (APY), a government-backed pension scheme in India aimed specifically at the unorganized sector. The APY can be opted by anyone between 18-40 years of age. The scheme promises a fixed pension ranging from ₹1,000 to ₹5,000 on attaining 60 years of age, based on the contributions made.
However, before deciding between EPS and APY or any other investment instrument, keep in mind that the dynamics of financial markets in India are multifaceted and impacted by numerous internal and external variables. An investor should consider all aspects of the market before making a decision.
Considerations
Always remember that it’s advisable not to solely depend on the EPS for post-retirement life. Diversifying your investment portfolio is a smart practice to counter market and economic uncertainties.
The article is meant for general informational purposes only. It’s recommended that individuals should gauge all the pros and cons of trading in the Indian financial market.
Summary
The Employee Pension Scheme (EPS) is a part of the Employee Provident Fund and is an essential initiative to ensure post-retirement financial security for employees in India. This scheme starts paying from the age of 58 and depends upon factors like the number of service years and last drawn salary. The scheme also provides benefits to nominees. While bearing similarities to APY, a pension scheme aimed at the unorganized sector, the decision between EPS, APY, or any other investment instrument should be made after considering all aspects of the Indian financial market. In any case, investing in EPS should not be the only reliance for post-retirement stability. Diversifying an investment portfolio is always advisable.
