Can I opt for higher EPS pension? I retire in 2046

Published: February 28, 2023 at 6:00 am

A reader tweeted, “I am working in one of the best PSU of India, current Basic+ DA is 125k with 8% increment/ yr. Natural retirement year is 2046. To choose EPS, i have to deposit 12 lakhs from my PF. Is it good to join EPS?”

First, the good news. Subscribers now have  up to May 3rd 2023, to decide if they wish to opt for higher EPS pension. Now there are different categories to consider. (1) Those who retired before Sep 2014, (2) Those who retired after Sep 2014, (3) Those who are going to retire in the recent future (or recent past and (4) those who are going to retire in future (10Y or more) – assuming all categories are eligible for higher EPS pension.

We will discuss the first three categories in a future articles and tackle the easy one – (4) here.

  1. Rs. 12 lakhs removed from the EPF account (assuming the calculations are correct) is a huge dent even today. It is a massive dent considering the impact of compounding over the next 23 years.
    • Note: To be eligible for EPS, a subscriber who will retire should be contributing more at 12% of basic pay + DA. If the reader has not been making such higher contribution, then she is not eligible for higher EPS pension. The Rs. 12 lakhs mentioned above is assumed to be the shortfall to reach the 12% of basic + DA limit on past contributions.
  2. That is not all. Future contributions to EPF will also decrease, further decreasing the total corpus.
  3. Not opting for EPS pension has multiple benefits for those in category four. They have complete control of their retirement corpus and plan it as they like. Most importantly, only those in this category have the time to set right past investing mistakes (if any) and go about it right in future. We strongly recommend working with a SEBI registered fee-only advisor from our curated list.
  4. After retirement a part of the income can be used to buy an annuity using RBI bonds or insurers. See: How I used RBI Retail Direct to buy govt. bonds and create an income source.
  5. Unlike EPS pension, a RBI bond can be held in joint mode, and such an income will not drop to 50% on the death of the subscriber. The entire capital remains ours and can be handed down to our nominees.
  6. EPFO can change EPS pension rules at any time in future, and if these are unfavourable, the money already given to EPS is lost forever. This is a big risk for those in category four.
  7. A salary cut in the future would lead to lower EPS pension. This is unlikley for those in a PSU but a possibility for those in corporate sector – layoffs, job hopping etc.

Therefore we believe that those who retirement is at least ten or more years away should not opt for higher EPS pension. They should take professional help and sort out their retirement planning.

This dopes not imply that those in the first three categories should opt for EPS pension. We will consider these situations in a future article.

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