Your eligibility is the primary side to think about when discussing larger EPS pension. It isn’t open to everybody who retired after Sep 2014 or are nonetheless in service. See: Are you actually eligible for larger EPS pension? EPFO round clarifies (additionally see under).
After getting satisfied your self that you just are eligible (see circumstances under), three worker classes could be thought-about.
- Those that retired earlier than Sep 2014,
- Those that retired after Sep 2014 (however as much as Feb 2023)
- Those that are going to retire in future (10Y or extra)
We’ve got already coated class 4: Can I go for larger EPS pension? I retire in 2046 and shall focus on class 2 on this article. Ps. I earlier thought there have been 4 classes, however three is ample.
Allow us to first go over the three circumstances that have to be concurrently met for eligibility.
i. The workers and employers who had contributed below paragraph 26(6) of EPF Scheme on wage exceeding the prevalent wage ceiling of Rs 5000/- or 6500/-; and
ii. didn’t train joint possibility below the proviso to Para 11(3) of the pre- modification scheme (since deleted) whereas being members of EPS,95; and
iii. had been members previous to 01.09.2014 and continued to be a member on or after 01.09.2014.”
Observe: For those who had not contributed larger the wage ceiling restrict previously in EPF or EPS, then you aren’t eligible for larger pension now!
Historic EPF wage ceiling
- ₹300 in 1952
- ₹500 in 1957
- ₹1,000 in 1962
- ₹1,600 in 1976
- ₹2,500 in 1985
- ₹3,500 in 1990
- ₹5,000 in 1994
- ₹6,500 in 2001 and
- ₹15,000 since 2014 onwards.
Somebody who retired after Sep 2014 ought to have contributed a sum larger than wage ceilings of Rs 5000 and Rs. 6500 to EPF/EPS to qualify for larger EPS pension.
So now allow us to contemplate an worker who retired after Sep 2014. In the event that they already contributed extra to EPS, choosing proportionately larger EPS pension is clearly the appropriate name.
How about instances the place workers contributed 12% of wage in EPF, however the EPS contribution was solely 12% of wage ceiling. Due to Ashal Jauhari and SEBI RIAs Chandan Singh Padiyar, Ajya Pruthi and Swapnil Kendhe for useful discussions.
The shortfall in EPS contributions have to be deducted from EPF with curiosity. However is it price it?
For these instances, you’ll have to decide your withdrawal charge. That is often outlined as whole bills within the first yr of retirement divided by whole corpus. However for our functions it might be extra significant to outline this in another way.
Withdrawal Price (WR) = Present annual withdrawal quantity divided by the present whole corpus (excluding an emergency corpus).
It is because pension from different sources or rental revenue can be utilized by the retiree to deal with a great chunk of annual expense, and the withdrawal quantity solely accounts for the shortfall in bills.
Let say the WR is 5.9% in 2023, and yr of retirement is 2015. Assuming an inflation of about 5% or 6%, we are able to approximate the WR within the yr of retirement. That’s the preliminary withdrawal charge.
To do that, we use: preliminary WR is 5.9%/(1+5%)^8 = 4%
Right here 8 = time elapsed in years since retirement: 2023-2015.
We will even contemplate the annuity charge of EPS pension (relevant solely in instances the place a lump sum is deducted from EPF to account for EPS shortfall).
Annuity charge = Annual further EPS pension divided by lump sum paid from EPF.
If the preliminary WR is > 4%, then this most likely means you might be withdrawing an excessive amount of out of your present corpus to fulfill the shortfall in bills after accounting for pension or rental revenue.
Suppose the annuity charge of EPS pension is larger than the 30Y or 40Y RBI bond coupon charge. In that case, you’ll be able to contemplate paying the shortfall in EPS contributions to get larger EPS pension however with out utterly emptying your liquid corpus (excluding an emergency fund).
If the preliminary WR is < 3.5%, you most likely have ample liquid retirement property to deal with inflation and emergencies. Therfore, you do not want the upper EPS pension and might choose out.
If the preliminary WR is between 3.5% to 4%, it’s a cat on the wall state of affairs. Nearer examination and projection of future cashflow with affordable assumptions and expectations are essential to determine whether or not one ought to go for larger EPS pension. It perhaps doable to handle with out the EPS pension, however there’s likelihood of operating out of cash in your lifetime. You’ll be able to DIY this cashflow projection or seek the advice of a SEBI registered fee-only advisor from our curated listing.
These with ample funds can use the EPS pension as a secondary pension supply if it has a better annuity charge. You’ll be able to simulate this with our robo advisory instrument.
As I’m certain you may have realised by now, it’s a fairly robust alternative, and every case is totally different. So common calculations or comparability won’t assist. Now that the final date has been prolonged to Could third, there’s loads of time to think about particular person circumstances.
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