The Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) are two significant components of the retirement benefits provided to employees in India. While both schemes are related to employee welfare and financial security after retirement, they have distinct purposes and features. In this blog post, we will delve into the differences between EPS and EPF, shedding light on their respective roles and contributions towards employee welfare.
Purpose and Coverage:
The EPF primarily aims to build a retirement corpus for employees. It is a mandatory scheme applicable to organizations employing 20 or more employees. Both employees and employers contribute a percentage of the employee’s salary (basic pay + dearness allowance) towards the EPF. The EPS, on the other hand, provides a pension to employees who are members of the EPF. It is applicable to employees who are eligible for EPF and have completed at least 10 years of service.
Contributions and Accumulation:
Under the EPF, employees contribute 12% of their basic pay + dearness allowance towards the fund, and an equal contribution is made by the employer. The entire contribution (employee + employer) goes into the EPF account and accumulates over the course of the employee’s service. The EPS, however, receives 8.33% of the employer’s contribution, subject to a maximum amount, which is diverted towards the pension scheme. The remaining employer’s contribution, along with the employee’s share, goes to the EPF account.
The EPS provides a monthly pension to employees upon retirement, disability, or death. The pension amount is calculated based on the employee’s years of service and the average monthly salary during the employee’s last 12 months of service. The pensionable salary is capped at a specified limit, beyond which no additional contribution is made to the EPS. The actual pension amount is determined by multiplying the pensionable salary with a factor specified by the government, depending on the employee’s years of service.
EPF registration withdrawal rules differ from EPS withdrawal rules. Employees can withdraw their EPF contributions, along with the accumulated interest, under specific circumstances, such as retirement, resignation, unemployment, or in case of financial emergencies. However, the EPS does not allow employees to withdraw the pension amount as a lump sum. Instead, employees are entitled to receive a monthly pension for their lifetime.
EPF accounts are portable and can be transferred from one employer to another when an employee changes jobs. The EPF balance and the interest earned can be transferred seamlessly to the new employer’s EPF account. However, the EPS is not transferable, as it is calculated based on the service period with a specific employer. If an employee changes jobs, the EPS benefits earned with the previous employer remain intact, and the employee becomes eligible to contribute to EPS with the new employer.
Understanding the distinctions between EPS and EPF is crucial to comprehend the two components of employee welfare and retirement benefits in India. While the EPF focuses on building a retirement corpus through contributions from both employees and employers, the EPS ensures a monthly pension for eligible employees based on their years of service. By comprehending the purpose, contributions, accumulation, withdrawal rules, and transferability of both schemes, employees can make informed decisions regarding their financial planning and secure a stable retirement.