Employee Pension Scheme Update: EPFO has extended the deadline till June 26, 2023 for opting for higher pension under the Employee Pension Scheme (EPS). Employees now have two months time in which they can decide which option is going to be beneficial for them in the new or old plan.
However, it is not right to say whether more pension will be beneficial for all the employees. The scheme with higher pension is beneficial for those who want to get higher pension every month after retirement. But for those who want more lump sum amount at one go after retirement, the scheme with higher pension will not be beneficial.
As soon as the employee opts for higher pension, the balance deposited in his EPF account will decrease but the amount deposited in EPS account will increase. But if an employee does not opt for more pension, then a lot of money can be deposited in his EPF corpus. But after choosing this option, financial planning will have to be done separately for post-retirement.
Understand Provident Fund!
All EPFO members have two accounts. In which one account is of EPF and the other is of EPS in which the pension amount is deposited. 12 percent of the basic salary and DA of all employees is deposited in the EPF account. The same amount is also deposited by the employer but not all of it is deposited in the EPF account. Out of the 12 percent contribution made by the employer, 8.33 is deposited in the EPS account and the remaining 3.67 percent is deposited in the EPF account. But as soon as you choose the option of higher pension, there will be a change in the contribution made by the employer.
What is Employee Pension Scheme
The government had brought a new law in 1995 for the employees working in the private sector. The purpose of this law was to give the benefit of pension to the employees working in the private sector as well. When this law was made, then the maximum limit of salary for contribution to EPS was fixed at Rs.6500, which was later increased to Rs.15000. However, in 2014 a new rule was made. In which the employee was exempted from contributing a total of 8.33 per cent of the basic pay and DA to the pension fund, that is, it was not necessary for the employees to contribute to the EPS.
This is how you can get more pension!
But if you want more pension after retirement then you can contact your HR department. But if you want to apply for more pension yourself, then you can apply yourself by visiting the EPFO website. After visiting the EPFO website, you will see two options. If the employee has retired before September 1, 2014 and wants to opt for higher pension, then he has to choose the first option. If the employee is still in the job then they have to choose the second option.
After clicking on the second option to choose the option of higher pension under EPS, the registration request form will open. They have to submit the form by entering their UAN and Aadhaar. The employer will get the details of the employee’s employee status. After getting the approval from the employer, the fund deduction for higher pension will start.
To choose the option of higher pension, EPFO has also provided offline facility, in which the employee will have to go to the nearest EPFO office or visit the camp where it has been set up. Through this facility, the employees can easily submit the form after filling it.
More salary will be deducted for more pension!
There will be no impact on the salary received by the employee for getting more pension after retirement. Only the employer’s contribution will change. For example, suppose that the basic salary and DA of an employee is Rs 25000, which is deposited in the EPF account of the employee Rs 3000. The employer also has to contribute Rs.3000.
However, according to the new rules, Rs 2080 will be deposited in the EPS account while Rs 920 will be deposited in the EPF account. Till now, 8.33% amount i.e. Rs 1249 was being deposited in the EPS account of the employees getting Rs 15000 basic salary and DA, while the remaining amount was being deposited in the EPF account. But after the salary limit for contribution to EPF is over, the employees will now be able to contribute 8.33 per cent of salary and DA to the pension scheme. That is, 8.33 percent of the amount contributed by the employer will go to the Pension Fund and 3.67 percent will be deposited in the EPF.
How to calculate pension
There is a formula to calculate pension. For example, suppose your basic salary + DA is Rs 15000 and if you have served for 35 years, then after multiplying both, you will have to divide by 70, which becomes Rs 7500, that means you will get a pension of Rs 7500 every month. The Supreme Court has changed this formula. In which the average salary of the last 60 months has been taken or the pension has been fixed on the basis of the average of the pension salary of 5 years.
According to the Supreme Court’s decision, the average salary of the last 60 months (after adding basic salary and DA) has to be multiplied by the total years of service (eg 35 years) and divided by 70. If your basic salary and DA is more then pension salary will also be more. Suppose someone’s basic salary + DA is one lakh rupees and has been in service for 35 years, then the monthly pension will be Rs 50,000, which is much more than the old formula of basic salary of Rs 15,000.
Retired people can also take advantage
Retired employees can also apply for higher pension under the new rules. His pension will be fixed on the basis of the amount deposited in the EPS account. Such people can get more pension by transferring their EPF funds to EPS account. Along with this, interest will also continue to accrue on it.
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