EPF& PENSION: HOW IT WORKS

EPF& PENSION: HOW IT WORKS

Deepti Bhaskaran

* Ietters@hindustantimes.com

May 26.05.2012

You know that every month you park 12% of your basic plus dearness allowance (DA) in your Employees' Provident Fund (EPF) account and your employer pitches in the same amount. But a part of your employer's contribution goes into a defined pension product called the Employees' Pension Scheme (EPS).

HOW DOES IT WORK?

As per the EPS, 1995, the employer needs to contribute 8.33% of your salary. But usually your employer contributes only up to Rs 541 per month, 8.33% of  Rs 6,500, irrespective of your salary, to your EPS account. That is because according to EPS 1995, the maximum pen­sionable salary is restricted to Rs 6,500,

WHEN DOES EPS DELIVER?

You are entitled to pension under EPS when you turn 58 years' of  age and after 10 years of continuous service. Since EPS is a defined pension prod­uct, the amount of pension you get depends upon a fixed formu­la, which is average monthly salary of the last year of service multiplied by the number of years of service divided by 70.

HOW TO MAKE THE MOST OF YOUR EPS

A little known fact about EPS is that you can bump up your pen­sion by agreeing to contribute more into your EPS account. If you and your employer decide to contribute not just 8.33% of Rs 6,500 but of the entire basic salary, you get a monthly pen­sion which is based on the actual basic salary drawn by you. But the system is fraught with administrative roadblocks. Transferring your EPF accounts or tracking the scheme certifi­cate can be very tedious.