Hi,
i want to know how the EPS is calculated. is it 8.33 % of the capped monthly Basic salary i.e 6500 (max. of Rs. 541) or 8.33% of entire basic salary?
i have read in a leading business newspaper that i can ask the company HR/Finance to change the EPS calcualtion to entire basic salary.
please clarify on this.
Regards,
Bhargav
From India
i want to know how the EPS is calculated. is it 8.33 % of the capped monthly Basic salary i.e 6500 (max. of Rs. 541) or 8.33% of entire basic salary?
i have read in a leading business newspaper that i can ask the company HR/Finance to change the EPS calcualtion to entire basic salary.
please clarify on this.
Regards,
Bhargav
From India
Dear Bhargav
PF is to be deducted 12% from Employee and 8.33% for Pension from employer and 3.67% employer PF. If a person's basic pay is above Rs. 6500/- then 12% PF from employee and Rs. 541/- for Pension from employer and left out amount whatever percentage it may be will be carried forward to employer PF. (Now Government is in the verge of considering to enhance the Pension amount contribution).
With warm regards
S. Bhaskar
9099024667
From India, Kumbakonam
1168PF is to be deducted 12% from Employee and 8.33% for Pension from employer and 3.67% employer PF. If a person's basic pay is above Rs. 6500/- then 12% PF from employee and Rs. 541/- for Pension from employer and left out amount whatever percentage it may be will be carried forward to employer PF. (Now Government is in the verge of considering to enhance the Pension amount contribution).
With warm regards
S. Bhaskar
9099024667
From India, Kumbakonam
Dear Bhargav,
I shall quote the clause 11(3) of the EPS-95.
"The maximum pensionable salary shall be limited to Rs. 6500/- per month. [Provided that if at the option of the employer and employee, contribution paid on salary exceeding Rs. 6500/- per month from the date of commencement of this Scheme or from the date salary exceeds Rs. 6500/- whichever is later, and 8.33 per cent share of the employers thereof is remitted into the Pension Fund, pensionable salary shall be based on such higher salary.]"
But till date no such contribution to EPS for a salary in excess of Rs. 6500 p.m is reported any where from India. I know a few cases that the EPFO has not enteretained such an option. i.e, Whatever be the provisions in the scheme, practically the contribution is based on the salary subject to the ceiling of Rs. 6500.
Abbas.P.S
From India, Bangalore
I shall quote the clause 11(3) of the EPS-95.
"The maximum pensionable salary shall be limited to Rs. 6500/- per month. [Provided that if at the option of the employer and employee, contribution paid on salary exceeding Rs. 6500/- per month from the date of commencement of this Scheme or from the date salary exceeds Rs. 6500/- whichever is later, and 8.33 per cent share of the employers thereof is remitted into the Pension Fund, pensionable salary shall be based on such higher salary.]"
But till date no such contribution to EPS for a salary in excess of Rs. 6500 p.m is reported any where from India. I know a few cases that the EPFO has not enteretained such an option. i.e, Whatever be the provisions in the scheme, practically the contribution is based on the salary subject to the ceiling of Rs. 6500.
Abbas.P.S
From India, Bangalore
Dear Abbas,
You are right we made an attempt to pay an enhanced contribution in excess of Rs.6500/- way back in 2002 and applied to the EPFO based on a newspaper article published in Times of India, New Delhi edition. But it was stated that the option should have been done at the time of amendment of the wage ceiling which I think was in the year 1998 if I am not wrong.
But we also weighed other options.
1. The employee needs to contribute on the higher wages with retrospective effect.
2. The loans taken by the employee was based on the employer and employee contribution in respect of housing loan. So these need to be reworked.
3. As long as the employee works in the organisation it will benefit him. But if he leaves the organisation, and the new organisation restricts his wages to Rs.6500/- then the contribution made by him towards the EPS in his previous employment will not benefit him as the contributions goes into the corpus fund. On the other hand if the EPS is paid on Rs.6500/- then the remaining amount gets credited to his EPF account which he can withdraw.
If and only when the amendment removing the wage ceiling comes across India will employees benefit.
M.V.KANNAN
From India, Madras
You are right we made an attempt to pay an enhanced contribution in excess of Rs.6500/- way back in 2002 and applied to the EPFO based on a newspaper article published in Times of India, New Delhi edition. But it was stated that the option should have been done at the time of amendment of the wage ceiling which I think was in the year 1998 if I am not wrong.
But we also weighed other options.
1. The employee needs to contribute on the higher wages with retrospective effect.
2. The loans taken by the employee was based on the employer and employee contribution in respect of housing loan. So these need to be reworked.
3. As long as the employee works in the organisation it will benefit him. But if he leaves the organisation, and the new organisation restricts his wages to Rs.6500/- then the contribution made by him towards the EPS in his previous employment will not benefit him as the contributions goes into the corpus fund. On the other hand if the EPS is paid on Rs.6500/- then the remaining amount gets credited to his EPF account which he can withdraw.
If and only when the amendment removing the wage ceiling comes across India will employees benefit.
M.V.KANNAN
From India, Madras
Whatever I write below is applicable only to employees of Private sector in India ( including IT and BPO employees ), since Govt. companies have their own separate pension fund ( as far as I know ).
Employees Pension Scheme (EPS ) is operated by EPFO EPFO , the same organisation which handles your Provident Fund( PF ) as well.
12% of your Basic salary goes to EPFO.An equivalent amount is contributed by your Employer as well i.e. in total 24% of your basic salary goes to EPFO.
This amount ( i.e. 24% of your basic salary ) is allocated into different accounts as follows:
1. EPS 8.33% of your basic salary goes towards EPS, subject to a maximum of Rs. 541/- (i.e. 8.33% of Rs. 6500 )
2. The rest of the amount goes into the PF account.
An example of this allocation can be found in this file.
You earn certain % of interest on the amount in your PF account. The rate of interest is decided by the Board of EPFO. Whatever is the amount accumulated in this PF account by the time you retire, you receive that as a lump sum.
But we are only interested in what happens to the amount deposited in the EPS account. The amount accumulated in your EPS account is paid back to you as a monthly pension after you retire.
Now its time for some serious number crunching, here we go:
Ram joins a company at Age 25, works there for 35 years and retires at the age of 60.Lets assume his basic salary was Rs. 10,000/- from the beginning of his employement to his retirement.
Since his basic salary was greater than Rs. 6500/- the amount that went towards EPS was Rs. 541/- ( the EPS rules place a cap on the maximum basic salary which is used to calculate your contribution and your monthly pension )
After retirement his monthly pension would be calculated using the below formula:
( Pensionable salary X Pensionable service ) / 70
Here,
Pensionable salary = Rs. 6500/- (remember, EPS rules place a cap on basic salary )
Pensionable service= 35 years ( the number of years he was in service, and contributed to EPS )
So, the calculation yields.
( 6500 X 35 ) / 70 = Rs. 3250/- ( Rams monthly pension )
i.e. his annual pension is Rs. 39,000/-
So now we need to calculate whether Ram got a fair deal. Whether this monthly pension paid to him was just?
Lets use a recurring deposit calculator, to estimate how much he would have accumulated in his EPS account by the time he retires. We assume a conservative rate of interest 8%
It would be Rs. 12,49,263/-
To calculate:
1.Go to this link
http://teacherone.com <link updated to site home>
2. Enter amount as Rs. 541/-
3. Frequency of deposit: Monthly
4. Rate of interest: 8 %
5. Duration: 420 months ( 35 years X 12 months )
6. Press Calculate Maturity amount button. You will get 12,49,263
There are annuity ( i.e. immediate payment of pension ) schemes offered by public and private life insurance companies. Lets take LIC ( a govt. owned life insurer ).
It offers a scheme known Jeevan Akshay which is an immediate pension plan.
LIC - Life Insurance Corporation of India
A PDF printout of the page in this link is here.
Observe the table on top of Page 2 of this PDF file.
For Rs. 1 lakh price, anyone retiring at age 60 can get a annual pension Rs. 9350/- ( constant and guaranteed for his lifetime )
Since Mr. Ram has Rs. 12,49,263/- with him ( I am assuming that the amount accumulated in his EPS account is given back to him on retirement, but as per the rules this does not happen ), lets calculate how much annual pension he can get from LIC. We use the premium calculator available on LICs website to do this.
1. Go to this link. LIC - Life Insurance Corporation of India
2. Choose Jeevan Akshay from the drop-down.
3. Press on Select Product button.
4. Enter date of birth as 31/12/1947, so that he is 60 years today.
5. Enter purchase price as 1249263 (the amount accumulated in Mr. Rams EPS)
6. Annuity type is Annuity payable for life
7. Annuity mode is yearly.
8. Press on Calculate premium button.
The annual pension is shown to be Rs. 1,21,803/-
This translates into a monthly pension of approx. Rs. 10,000/-
What a scam!!!
A person who deserves a monthly pension greater than Rs. 10,000/- is paid only peanuts ( Rs. 3250/- ) by the EPFO.
This is a scheme by the Govt and for the Govt, to cheat people of their retirement money. Anybody who has the option to take money out of EPS scheme and purchase annuity on his own, will get three times the pension he gets from EPFO.
PS: EPS rules can be found at this link
http://epfindia.com <link updated to site home>
Disclosure: I am not an accountant or CA and the above calculation is as per my understanding of the EPS rules. I am writing this post so that an qualified CA can comment on the above, whether my concerns are genuine. If you know a CA or accountant, please pass this blog post on to him and ask his opinion on it.
From India, Delhi
Employees Pension Scheme (EPS ) is operated by EPFO EPFO , the same organisation which handles your Provident Fund( PF ) as well.
12% of your Basic salary goes to EPFO.An equivalent amount is contributed by your Employer as well i.e. in total 24% of your basic salary goes to EPFO.
This amount ( i.e. 24% of your basic salary ) is allocated into different accounts as follows:
1. EPS 8.33% of your basic salary goes towards EPS, subject to a maximum of Rs. 541/- (i.e. 8.33% of Rs. 6500 )
2. The rest of the amount goes into the PF account.
An example of this allocation can be found in this file.
You earn certain % of interest on the amount in your PF account. The rate of interest is decided by the Board of EPFO. Whatever is the amount accumulated in this PF account by the time you retire, you receive that as a lump sum.
But we are only interested in what happens to the amount deposited in the EPS account. The amount accumulated in your EPS account is paid back to you as a monthly pension after you retire.
Now its time for some serious number crunching, here we go:
Ram joins a company at Age 25, works there for 35 years and retires at the age of 60.Lets assume his basic salary was Rs. 10,000/- from the beginning of his employement to his retirement.
Since his basic salary was greater than Rs. 6500/- the amount that went towards EPS was Rs. 541/- ( the EPS rules place a cap on the maximum basic salary which is used to calculate your contribution and your monthly pension )
After retirement his monthly pension would be calculated using the below formula:
( Pensionable salary X Pensionable service ) / 70
Here,
Pensionable salary = Rs. 6500/- (remember, EPS rules place a cap on basic salary )
Pensionable service= 35 years ( the number of years he was in service, and contributed to EPS )
So, the calculation yields.
( 6500 X 35 ) / 70 = Rs. 3250/- ( Rams monthly pension )
i.e. his annual pension is Rs. 39,000/-
So now we need to calculate whether Ram got a fair deal. Whether this monthly pension paid to him was just?
Lets use a recurring deposit calculator, to estimate how much he would have accumulated in his EPS account by the time he retires. We assume a conservative rate of interest 8%
It would be Rs. 12,49,263/-
To calculate:
1.Go to this link
http://teacherone.com <link updated to site home>
2. Enter amount as Rs. 541/-
3. Frequency of deposit: Monthly
4. Rate of interest: 8 %
5. Duration: 420 months ( 35 years X 12 months )
6. Press Calculate Maturity amount button. You will get 12,49,263
There are annuity ( i.e. immediate payment of pension ) schemes offered by public and private life insurance companies. Lets take LIC ( a govt. owned life insurer ).
It offers a scheme known Jeevan Akshay which is an immediate pension plan.
LIC - Life Insurance Corporation of India
A PDF printout of the page in this link is here.
Observe the table on top of Page 2 of this PDF file.
For Rs. 1 lakh price, anyone retiring at age 60 can get a annual pension Rs. 9350/- ( constant and guaranteed for his lifetime )
Since Mr. Ram has Rs. 12,49,263/- with him ( I am assuming that the amount accumulated in his EPS account is given back to him on retirement, but as per the rules this does not happen ), lets calculate how much annual pension he can get from LIC. We use the premium calculator available on LICs website to do this.
1. Go to this link. LIC - Life Insurance Corporation of India
2. Choose Jeevan Akshay from the drop-down.
3. Press on Select Product button.
4. Enter date of birth as 31/12/1947, so that he is 60 years today.
5. Enter purchase price as 1249263 (the amount accumulated in Mr. Rams EPS)
6. Annuity type is Annuity payable for life
7. Annuity mode is yearly.
8. Press on Calculate premium button.
The annual pension is shown to be Rs. 1,21,803/-
This translates into a monthly pension of approx. Rs. 10,000/-
What a scam!!!
A person who deserves a monthly pension greater than Rs. 10,000/- is paid only peanuts ( Rs. 3250/- ) by the EPFO.
This is a scheme by the Govt and for the Govt, to cheat people of their retirement money. Anybody who has the option to take money out of EPS scheme and purchase annuity on his own, will get three times the pension he gets from EPFO.
PS: EPS rules can be found at this link
http://epfindia.com <link updated to site home>
Disclosure: I am not an accountant or CA and the above calculation is as per my understanding of the EPS rules. I am writing this post so that an qualified CA can comment on the above, whether my concerns are genuine. If you know a CA or accountant, please pass this blog post on to him and ask his opinion on it.
From India, Delhi
Dear Kamal sharma,
I am having the openion that the EPS has to be reasonably revised in favour of the employees. Especially the curtailment of Return of Capital is totally an injustice. Because by diverting a portion of EPF, Pension Fund is being accumulated. The interest of this accumulation, we get as pension. But what about our capital investment? under this context the provision of "Return of Capital" was in corporated to EPS.
But your comparison with other Financial Agencies is not realistic. This may lead PF members and public to some misunderstandings. Because of this, I intervene to the matter.
You have projected that the income from other agencies will be around 10,000 comparing a meagre pension from EPF. Here you are silent on two aspects.
1. In the last 35 years the ceiling limit of PF revised 5 times. Before 1983 it was Rs. 1000. From 1.4.83 to 31.8.85 - Rs. 1600, From 1.9.85 to 31.10.90 - Rs. 2500, From 1.11.90 to 30.9.94 - Rs. 3500, From 1.10.94 to 31.5.2001 - Rs. 5000 & From 1.6.2001 onwrds it is Rs. 6500. i.e Ceiling limit is enhaced by 6.5 times within this 35 years.
2. For a pensionable service of above 19 years, 2 years' bonus will be added.
i.e If we take the above enhancements into account, the pension amount of 3250 will become 3250x6.5x37/35 = Rs. 22332. At the same time the hike in deposit will be 3.8 times.
However still the EPS is very nominal and the withdrawal of Return of Capital is purely an injustice.
Abbas.P.S
From India, Bangalore
I am having the openion that the EPS has to be reasonably revised in favour of the employees. Especially the curtailment of Return of Capital is totally an injustice. Because by diverting a portion of EPF, Pension Fund is being accumulated. The interest of this accumulation, we get as pension. But what about our capital investment? under this context the provision of "Return of Capital" was in corporated to EPS.
But your comparison with other Financial Agencies is not realistic. This may lead PF members and public to some misunderstandings. Because of this, I intervene to the matter.
You have projected that the income from other agencies will be around 10,000 comparing a meagre pension from EPF. Here you are silent on two aspects.
1. In the last 35 years the ceiling limit of PF revised 5 times. Before 1983 it was Rs. 1000. From 1.4.83 to 31.8.85 - Rs. 1600, From 1.9.85 to 31.10.90 - Rs. 2500, From 1.11.90 to 30.9.94 - Rs. 3500, From 1.10.94 to 31.5.2001 - Rs. 5000 & From 1.6.2001 onwrds it is Rs. 6500. i.e Ceiling limit is enhaced by 6.5 times within this 35 years.
2. For a pensionable service of above 19 years, 2 years' bonus will be added.
i.e If we take the above enhancements into account, the pension amount of 3250 will become 3250x6.5x37/35 = Rs. 22332. At the same time the hike in deposit will be 3.8 times.
However still the EPS is very nominal and the withdrawal of Return of Capital is purely an injustice.
Abbas.P.S
From India, Bangalore
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
EPS - Wage Limit increase_01.09. 2014.pdf
Calcu. pf Emp.eps.epf sample sheet for HR site..xls