EPF vs EPS: From Benefits To Contribution, Key Differences You Need To Know
Employees' Provident Fund (EPF) and Employees' Pension Scheme (EPS) are two crucial retirement benefits offered to salaried employees in the private sector. Both schemes are managed by the government-backed Employees' Provident Fund Organisation (EPFO).
These schemes are aimed at enhancing social security for salaried employees by providing them with an opportunity to build a retirement corpus with regular investments during employment years.
Both the EPS and EPF schemes vary in certain forms such as structure, payout and flexibility. For effective retirement planning, all EPFO subscribers need to understand the key details about both schemes.
Employees' Provident Fund
EPF is a retirement benefits scheme in which an employee and their employer both contribute a fixed percentage of the employee's basic salary and dearness allowance (DA) every month. Currently, an employee needs to contribute 12% of the basic salary and DA to the EPF scheme every month, as per the existing rules. The employee's entire contribution goes to the EPF account. An equal amount is also contributed by the employer every month. From the employer's share, a partial amount goes into the EPF scheme and the remaining to the EPS.
The EPF has provisions for partial withdrawal for specific conditions like unemployment or emergencies. One of the main differences between the two schemes is that EPF funds are disbursed as a lump sum, whereas EPS is provided as a monthly pension.
The EPF interest rate is fixed by the government for each financial year. For the financial year 2024-25, the interest rate has been fixed at 8.25%.
Employees' Pension Scheme
The pension scheme under EPFO is aimed at building a pension fund for all provident fund contributors. Under the EPFO rules, employees become eligible to receive a pension on retirement at the age of 58 years. To receive the pension, the employees must have completed at least 10 years of service. The EPFO subscribers are allowed to defer the pension to 59 or 60 years of age.
The EPFO subscribers are eligible for early pension before the age of 58 years, but not before 50. However, the employees can only claim this benefit if they have completed 10 years of service. In case of early pension, the monthly payout will be reduced by 4% for every year the member's age falls short of 58.
Notably, if your basic salary and DA are more than Rs 15,000 per month, then you are not eligible for EPS. This rule was implemented by the EPFO in September 2014. Those who were contributing to the scheme before September 1, 2014, will continue to get the benefits of the pension scheme.
The contributions made under this scheme are by the employer only. Of the 12% of the basic salary and DA contribution that an employer makes, 8.33% goes towards EPS and the remaining towards EPF.
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