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After the latest supreme court docket ruling on the Worker Pension Scheme (EPS), EPFO subscribers, as of 1st Sep 2014, can retrospectively contribute 8.33% of their fundamental + DA to the EPS through a deduction from the EPF.
The choice to do that has been opened solely to a bit of staff and is anticipated to be expanded quickly. On this article, we will not get into the nitty-gritty of the judgement or eligibility criterion.
As a substitute, we will give attention to what eligible staff ought to do. Earlier than we start, it is very important level out that this selection shouldn’t be eligible to those that joined the EPF after 1st Sep. 2014 as they aren’t a part of the EPS.
- A considerable sum of a number of lakhs must be paid from the EPF to the EPS to avail increased pension. It will interrupt the compounding of the EPF corpus for many who nonetheless have a number of years of service left.
- Suppose you pay the lump sum and go for a better EPS pension, estimate what it will be on the time of retirement.
- As a substitute, if you happen to let that cash compound in EPF and use it to buy a govt bond through RBI Retail Direct upon retirement, how a lot could be the curiosity payout? For instance, I used RBI Retail Direct to purchase authorities bonds and create an earnings supply.
- Suppose the RBI bond payout shouldn’t be a lot completely different from the EPS pension. In that case, the RBI bond is the superior possibility as a result of the bonds will be held collectively together with your partner in both or survivor mode, and the identical curiosity payout will proceed for the lifetime of each holders, and the cash will go to heirs.
- Distinction this with the EPS pension, the place the corpus can’t be recovered; worse, the payout to the surviving partner will drop by 50% upon the subscriber’s demise.
- Not choosing the improved EPS pension has one other benefit. There may be additional liquidity to go for a pension at a later age. Insurance coverage annuity payouts after 70 are sometimes extra profitable than authorities bond coupon charges. See: I want a pension: Ought to I purchase an annuity or a govt bond?
Our opinion is for these within the highest tax slab, not choosing the improved EPS pension is extra useful. There’s a increased corpus to work with to fight inflation through a bucket technique, and even when one desires fastened earnings/pension, authorities bonds are extra advantageous.
The upper EPS pension possibility may presumably profit these in decrease tax slabs, however this should be selected a case-by-case foundation, relying on the person’s circumstances. On the very least, we urge readers to not be in a rush to go for the upper EPS pension and examine the abovementioned eventualities.
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