Why should
you stay away from EPFO Higher Pension?
According
to the Supreme Court's decision, employees who were EPS members as of 1
September 2014 might choose to make larger pension contributions based on their
real salaries rather than the statutory wage ceiling of Rs 15,000 per month.
According
to the EPFO's February 20 guidelines, qualified employees who had previously
declined to choose larger pension contributions under EPS may now do so. The
factors listed below, however, may make you want to reconsider choosing the
higher pension contribution.
1.
The
PF account's funds will "fly away" - The major disadvantage of choosing the Higher Pension is that,
starting from the date of joining, a portion of your EPF corpus will be shifted
to the EPS scheme in order to permit a Higher Pension. The benefit of
compounding that you may have accrued over the years as an EPF member will be
lowered by the transfer of EPF funds to EPS. Therefore, you should conduct a
thorough evaluation before choosing the higher pension option.
2.
The entire balance of your PF account won't be paid out - According to current PF
regulations, your nominee (wife and children) will receive the entire amount
placed in this account in the event of any unfavourable events. However, in the
case of EPS, the wife will only receive a 50% pension while you are away. This
means that if you receive a pension of Rs. 20,000, your wife will receive 50%
of it, or Rs. 10,000, and your children would receive 25%, or Rs. 5,000.
3.
Lack
of a lump sum withdrawal option - There is no lump sum payout from
EPS. On the basis of your collected corpus, it grants you a pension. Consider
other government-backed choices like NPS, which will offer market-linked
returns plus a lump payment for purchasing an annuity at retirement, as an alternative
to choosing a greater pension under EPS. Additionally, NPS contributions offer
a deduction of an additional Rs 50,000 over the Rs 1.5 lakh allowed by Section
80C.
4. IN EPS SCHEME YOU GET LESS INTEREST -
The EPS programme is not flexible. Additionally, EPS does not earn the same
interest as EPF, which is typically higher.
5.
unable to take an early retirement -
Choosing EPFO's Higher Pension may not be a good idea for individuals
considering an early retirement because EPS pension eligibility is only granted
after 10 years of work and 58 years of age.
6.
Taxation at maturity –
The corpus received at maturity that is used by the NPS account holder for
buying an annuity is taxable under this plan. The Government of India levies
tax on 60% of NPS investment, while the remaining 40% escapes the taxation
amount
Disclaimer: The article is only for educational purpose
- Kain
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