Employee providend fund

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 December 2014 what is the purpose of EPS in EPF & MP ACT,1952 & HOW to Calculate it & what % are Aplly Please Clear All Related Matter regarding EPS

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 December 2014 The amount flowing into the EPS every month is so small that most don't even notice the deduction. It is 8.33% of the employer's contribution to the EPF on behalf of the employee, with a cap of Rs 6,500 a year the monthly contribution of Rs 541.
The amount just flows into a pension pool without earning any interest for you. If you have completed at least 10 years of service, you start getting pension from this pool after you turn 58. The pension amount is based on the number of years you had contributed to the scheme and your basic pay at the time of retirement. Here again there is a cap of Rs 6,500. If you were in service for 20 years or more, you get 2 bonus years as well.

The calculations show that 36-yearold Jangale, who joined the scheme when he started his career at 23, will get a pittance of Rs 3,435 as monthly pension when he retires at 58. If he and his wife Tejaswini receive the benefit for 27 years, the internal rate of return (IRR) comes to 4.97%. Instead of the EPS, if the money is put into an option that earns 8% it would grow to Rs 12.41 lakh in 35 years. If annuitised at the current rates offered by the Life Insurance Corporation, this amount would generate a lifelong monthly pension of Rs 8,242 for the Jangales. The IRR under this arrangement is much higher at 7.62% compared to the 4.97% they get from the EPS.