EPF account: Pension benefit rules that EPFO members may consider
Premium- After contributing for at least 10 years in EPF account, one can become eligible for ₹1,000 to ₹7,500 monthly pension under the EPS benefit
The Employees' Provident Fund Organisation (EPFO) has made it mandatory for each and every EPFO member to contribute 12 per cent of its basic salary in one's Employees' Provident Fund (EPF) account. According to tax and investment experts, EPF account is a government-backed mandatory retirement fund accumulation tool for an investor but it also gives pension benefit under EPS (Employees' Pension Scheme). They said that as per EPS Pension rule, one can become eligible for ₹1,000 to ₹7,500 monthly pension under the EPS benefit, provided the EPFO member has contributed in EPF account for at least 10 years.
Speaking on the EPS scheme eligibility criteria under EPFO norms; Harsh Roongta, Head at Fee Only Investment Advisers said, "To become eligible for EPS benefit under EPFO rules, one needs to contribute in one's EPF account for at least 10 continuous years. So, it's advisable for EPF account holder to continue with the EPF account at new organisation at the time of job switch. Going for EPF withdrawal is not advisable at the time of job switch."
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Roongta — who is a SEBI registered investment advisor too — went on to add, "When an employee contributes 12 per cent of its basic in EPF, similar amount is contributed by its recruiter too. But, out of 12 per cent recruiters’ contribution, only 3.67 goes into EPF. Rest 8.33 per cent goes in EPS."
EPS Pension Calculator
Highlighting the pension benefit under EPS pension rules, Harsh Roongta said that as per the EPFO pension rule, one can get ₹1,000 to ₹7,500 monthly pension after contributing in one's EPF account till he or she attains 58 years of age.
On how one's pension is calculated under EPS scheme; SEBI registered tax and investment expert Jitendra Solanki said, "To calculate monthly pension of the EPF account holder, the formula used is [(Pensionable salary + Pensionable Service)/70]. In simple words, pension will be higher if the period of EPF contribution is high and pension will be lower if the year of EPF contribution is low."
Solanki also said that one becomes eligible for monthly pension after attaining 50 years, but in that case one's pension will get reduced by 4 per cent for every year falling short of 58 years. For example, if an EPF account holder opts EPS pension benefit at the age of 55, then his or her pension will get reduced by 12 per cent (4x3). so, one should opt for pension only after 58 years of age.
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