Is the Employee Pension Scheme Really Beneficial Compared to Other Investment Options?

Hi All,

As per the Employee Pension Scheme, individuals who have been members of this scheme for more than 10 years will receive a monthly pension after reaching the age of 58. The calculation is as follows:

Member's Monthly pension: Pensionable salary X Pensionable Service
70

For example, if the pensionable salary is a maximum of Rs 6500/- and the pensionable service includes the number of years served for all employers if the PF account were transferred to a new employer each time. Any fraction of a year more than 6 months would be considered as 1 year, and less than 6 months would be ignored.

For instance, if the qualifying salary was Rs 20000/- and the service period was 20 years, the monthly pension amount would be (6500*20)/70 = Rs 1857/- only.

Now, considering how much an employee has contributed (assuming the starting salary was more than Rs 6500 per month), the total contribution would be:

(8.33% of 6500)*20 years = Rs 129840/-

Therefore, I believe it is a loss for an employee because if Rs 541/- (8.33% of 6500) had been invested in a PPF account for 20 years, they would receive an amount of Rs 3.18 Lakh if the ROI is 8% (Refer to the attached file), which is quite likely.

From the EPS as a pension, if someone receives the monthly pension amount for 14 years, the total amount would be Rs 3.18 lakh during that period, and future interest can be earned.

Can I get an expert view on this if I am missing something?

Dear Nikesh,

The Employees' Pension Scheme – 1995 has attracted plenty of discontentment and protest, both before and after its implementation, which might not have arisen against any other social security legislation in India. Despite such significant criticism and demands for better benefits from various quarters, none of the Union governments have shown interest in incorporating any amendments to the Scheme in favor of PF members after the enactment dated 29.2.96. Instead, a few benefits were either taken away or decreased.

However, in your above posting, a few mistakes or omissions have occurred as follows:

1. You mentioned that more than 6 months of service will be taken as 1 year. This should be corrected to 6 months or more.

2. For 20 years and more, two years' bonus will be added to the actual service. When calculating pension, this should be taken into account.

3. In the last 40 years, the ceiling limit of salary for PF has been increased from 1000 to 1600, 1600 to 2500, 2500 to 3500, 3500 to 5000, and 5000 to 6500. When comparing the benefits against contributions, this should be considered.

Abbas.P.S

Dear Nikesh, The Employees' Pension Scheme – 1995 has attracted a lot of discontentment and protest, both before and after its implementation, which might not have been raised against any other social security legislation in India. Despite such huge criticism and demand for better benefits from various corners, none of the Union governments have shown interest in incorporating any amendments to the Scheme in favor of PF members after the enactment dated 29.2.96. Instead, a few benefits were either taken away or decreased.

Corrections to Your Post

In your above posting, a few mistakes or omissions have occurred as follows:

1. You mentioned that more than 6 months of service will be taken as 1 year. This should be corrected to 6 months or more.
2. For 20 years and more, a two-year bonus will be added to the actual service. This should be considered when calculating the pension.
3. In the last 40 years, the ceiling limit of salary for PF has been enhanced from 1000 to 1600, 1600 to 2500, 2500 to 3500, 3500 to 5000, and 5000 to 6500. While comparing the benefits against the contribution, this should be taken into account.

Thanks for your reply. Yes, what you mentioned here, I have seen in the act also. But on the benefit part, it is purely a wastage of our hard-earned money. It is worse for less paid employees.

Regards, Nikesh

Dear Nikesh,

Why are you thinking that it is a pension scheme? Think of it as savings only, which you can access at the time of your old age. After reaching the pensionable period, please submit your Form 19 and Form 10C to claim the entire amount. It is up to you to decide whether to opt for a pension or not.

In our old age, it will be really beneficial whether you draw a pension or take the lump sum. So, never have negative feelings about your PF contributions now.

With warm regards,

S. Bhaskar
9099024667

Dear Bhaskar,

I don't have negative feeling for PF because it gives us the most consistent and completive interest rate and treat it a great saving.
But pension fund is loss for us because it could have been used in better way, can see this in my attached file where I have taken an example of PPF (which is also a govt saving scheme) which give you more flexibility.

So it's all about the maximum utilization of fund which is our right. Right now we give our contribution for whole life of service and then get that money without any interest.

Regards,

Nikesh
9871001868