Key Points
The provident fund body has notified the replacement mechanism for 1.16% additional contribution that the members were required to pay on a wage above Rs 15,000 when opting for the higher EPS pension; it will now be added to the employers contribution towards EPS, taking it to 9.49%..
Impact of new rule regarding 1.16% extra contribution Employees opting for the higher pension will not have to pay the additional 1.16% contribution on salary above Rs 15,000 from their salary; it will come from the employers overall contribution of 12% towards EPS and EPF..
Date of oldest active EPS 95 contribution Basic monthly salary Date of Retirement Basic monthly salary EPS pension under old rule Higher EPS 95 Pension Total additional Contribution* Return (IRR) on additional fund post retirement life of 15 yrs 1-Apr-96 Rs 5,000 31-Mar-31 Rs 58,460 Rs 7,929 Rs 26,879 Rs 11.21 lakh 18.7% 1-Apr-97 Rs 5,375 31-Mar-32 Rs 62,844 Rs 7,929 Rs 28,895 Rs 12.70 lakh 18.2% 1-Apr-98 Rs 5,778 31-Mar-33 Rs 67,558 Rs 7,929 Rs 31,062 Rs 14.35 lakh 17.7% 1-Apr-99 Rs 6,211 31-Mar-34 Rs 72,625 Rs 7,929 Rs 33,392 Rs 16.20 lakh 17.1% 1-Apr-00 Rs 6,677 31-Mar-35 Rs 78,071 Rs 7,929 Rs 35,896 Rs 18.25 lakh 16.5% 1-Apr-01 Rs 7,178 31-Mar-36 Rs 83,927 Rs 7,929 Rs 38,588 Rs 20.55 lakh 16.0%. *Including additional contribution toward EPS in past (9.49% towards EPS on wage above Rs 15000 since Sept 1, 2014) and future together with interest till retirement, historical annual interest rate till FY22 taken from EPFO; Assumptions: Future interest since FY23 to retirement is 8%, starting with a monthly basic salary of Rs 5000 on April 1, 1996 which grows annually at 7.5%, EPS contribution remains uninterrupted during consideration period ..
However, as the contribution rate went up since September 1, 2014, members will have to contribute at a higher rate for the same pension.. Therefore, the most critical part that pushes your ROI higher or brings it down is your length of service falling under additional contribution period starting from September 1, 2014..
Who can consider giving higher EPS pension a miss?People whose total length of service with active EPS contribution is less than 20 years are likely to get only a moderate return on their corpus..
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