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EPF vs EPS: Which is Better for Your Financial Future?

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Retirement planning is a crucial aspect of financial security, and two key government-backed schemes in India—EPF (Employee Provident Fund) and EPS (Employee Pension Scheme)—play a vital role. Both are part of the broader EPFO (Employee Provident Fund Organisation) framework, but they serve different purposes. While EPF focuses on building a retirement corpus, EPS provides a steady pension for life post-retirement.

If you’re wondering about the difference between EPF and EPS, this blog breaks down their features, benefits, and how they work, helping you make informed decisions for your future.

What is EPF?

The Employee Provident Fund (EPF) is a retirement savings scheme where both employees and employers contribute a portion of the employee’s salary to build a corpus. It’s aimed at ensuring financial independence during retirement.

Benefits of EPF

  • Retirement Corpus: A lump sum is available upon retirement, including the employee’s and employer’s contributions with accrued interest.
  • Tax Benefits: Contributions are eligible for tax deductions under Section 80C, and the interest earned is tax-free if withdrawn after 5 years.
  • Partial Withdrawals: EPF allows withdrawals for emergencies like medical treatment, education, or buying a house.
  • Long-Term Growth: The scheme offers competitive interest rates, ensuring steady growth of funds.

What is EPS?

The Employee Pension Scheme (EPS) is designed to provide a monthly pension post-retirement. It’s funded by a portion of the employer’s contribution to the EPF account.

Benefits of EPS

  • Lifetime Pension: Ensures financial stability during old age with a regular income.
  • Minimum Pension Guarantee: A minimum monthly pension of ₹1,000 is guaranteed.
  • No Employee Contribution: Employees do not contribute directly to EPS; it is funded by the employer.
  • Family Support: Offers pension benefits to the nominee in case of the employee’s demise.

EPF vs EPS: Key Differences

Understanding the difference between EPF and EPS is essential to grasp how they complement each other:

FeatureEPFEPS
PurposeBuild a retirement corpusProvide a monthly pension
Contribution SourceEmployee + EmployerEmployer only (8.33% of salary)
WithdrawalLump sum withdrawal upon retirementPension received monthly
TaxabilityTax-free (subject to conditions)Pension taxable as per slab
EligibilityAll salaried employees earning above Rs 15,000/monthApplicable to employees earning up to Rs 15,000/month
FlexibilityAllows partial withdrawals for specific needsNo early withdrawals permitted

How Contributions Work in EPF and EPS

The contributions to both schemes come from your salary:

  1. Employee Contribution (EPF): 12% of the employee’s basic salary + DA.
  2. Employer Contribution:
    • 8.33% goes to EPS (up to Rs 15,000 of salary).
    • The remaining 3.67% goes to EPF.

For example, if your basic salary is Rs 15,000:

  • Employer’s EPS contribution: Rs 1,249.
  • Employer’s EPF contribution: Rs 551.

Benefits Comparison: EPF vs EPS

Benefits of EPF

  • Liquidity: EPF allows partial withdrawals for emergencies or specific life goals.
  • Higher Returns: The EPF interest rate is generally higher than traditional savings schemes.
  • Compound Growth: Over time, your contributions and interest accumulate, creating a significant corpus.

Benefits of EPS

  • Financial Security: Offers guaranteed monthly income post-retirement.
  • Nominee Benefits: In case of the employee’s death, the spouse or dependent gets pension support.
  • Low Risk: As a government-backed scheme, EPS offers a stable and predictable pension.

What is the EPS Pension Formula?

The EPS pension is calculated using the formula:

Monthly Pension=Pensionable Salary×Service Period70\text{Monthly Pension} = \frac{\text{Pensionable Salary} \times \text{Service Period}}{70}

Example:

If your pensionable salary is Rs 15,000 and you’ve worked for 20 years, your monthly pension will be:
15,000×2070=Rs 4,285\frac{15,000 \times 20}{70} = Rs 4,285

How to Track Your EPF and EPS Contributions

Tracking your contributions is simple with digital tools:

  • Using the EPFO Portal: Log in to the EPFO website to view contributions and balances.
  • Via the Finnable App: With the Finnable TrackMyPF app, available on iOS and Google Play, you can easily monitor your EPF and EPS details on the go.

Conclusion

Both EPF and EPS play a significant role in retirement planning, but their objectives differ. EPF focuses on wealth accumulation, offering a lump sum for post-retirement expenses, while EPS provides a steady monthly pension for financial security in old age.

Understanding EPF vs EPS helps you strategize your retirement better. Whether you’re seeking a substantial retirement corpus or a stable pension, knowing the benefits of EPF and EPS ensures that you maximize these schemes.

Keep track of your EPF and EPS contributions and make your retirement planning hassle-free.

FAQs About EPF Vs EPS

  • What is the difference between EPF and EPS?

    EPF is a savings scheme that provides a lump sum on retirement, while EPS is a pension scheme offering monthly income post-retirement.

  • What is the EPS pensionable salary limit?

    The maximum pensionable salary for EPS is Rs 15,000 per month.

  • Can I withdraw money from EPS before retirement?

    No, EPS does not allow early withdrawals. However, if you leave a job before completing 10 years of service, you can withdraw the accumulated EPS amount.

  • Are the benefits of EPF taxable?

    No, EPF contributions and interest are tax-free if withdrawn after 5 years of continuous service.

Contents

Frequently Asked Questions (FAQs):

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Amit Arora

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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