Higher EPS Pension: Should those who retired recently or about to retire opt for it?

Published: March 1, 2023 at 6:00 am

Your eligibility is the first aspect to consider when discussing higher EPS pension. It is not open to everyone who retired after Sep 2014 or are still in service. See: Are you really eligible for higher EPS pension? EPFO circular clarifies (also see below).

Once you have convinced yourself that you are eligible (see conditions below), three employee categories can be considered.

  1. Those who retired before Sep 2014,
  2. Those who retired after Sep 2014 (but up to Feb 2023)
  3. Those who are going to retire in future (10Y or more)

We have already covered category 4: Can I opt for higher EPS pension? I retire in 2046 and shall discuss category 2 in this article. Ps. I earlier thought there were four categories, but three is sufficient.

Let us first go over the three conditions that must be simultaneously met for eligibility.

i. The employees and employers who had contributed under paragraph 26(6) of EPF Scheme on salary exceeding the prevalent wage ceiling of Rs 5000/- or 6500/-; and
ii. did not exercise joint option under the proviso to Para 11(3) of the pre- amendment scheme (since deleted) while being members of EPS,95; and
iii. were members prior to 01.09.2014 and continued to be a member on or after 01.09.2014.”


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Note: If you had not contributed higher the wage ceiling limit in the past in EPF or EPS, then you are not eligible for higher pension now!

Historical EPF wage ceiling

  • ₹300 in 1952
  • ₹500 in 1957
  • ₹1,000 in 1962
  • ₹1,600 in 1976
  • ₹2,500 in 1985
  • ₹3,500 in 1990
  • ₹5,000 in 1994
  • ₹6,500 in 2001 and
  • ₹15,000 since 2014 onwards.

Someone who retired after Sep 2014 should have contributed a sum higher than wage ceilings of Rs 5000 and Rs. 6500 to EPF/EPS to qualify for higher EPS pension.

So now let us consider an employee who retired after Sep 2014. If they already contributed more to EPS, opting for proportionately higher EPS pension is obviously the right call.

How about cases where employees contributed 12% of salary in EPF, but the EPS contribution was only 12% of wage ceiling. Thanks to Ashal Jauhari and SEBI RIAs Chandan Singh Padiyar, Ajya Pruthi and Swapnil Kendhe for helpful discussions.

The shortfall in EPS contributions must be deducted from EPF with interest. But is it worth it?

For these cases, you will have to determine your withdrawal rate. This is usually defined as total expenses in the first year of retirement divided by total corpus. But for our purposes it would be more meaningful to define this differently.

Withdrawal Rate (WR) = Current annual withdrawal amount divided by the current total corpus (excluding an emergency corpus).

This is because pension from other sources or rental income can be used by the retiree to handle a good chunk of annual expense, and the withdrawal amount only accounts for the shortfall in expenses.

Let say the WR is 5.9% in 2023, and year of retirement is 2015. Assuming an inflation of about 5% or 6%, we can approximate the WR in the year of retirement. That is the initial withdrawal rate.

To do this, we use: initial WR is 5.9%/(1+5%)^8 = 4%

Here 8 = time elapsed in years since retirement: 2023-2015.

We will also consider the annuity rate of EPS pension (applicable only in cases where a lump sum is deducted from EPF to account for EPS shortfall).

Annuity rate = Annual extra EPS pension divided by lump sum paid from EPF.

If the initial WR is > 4%, then this probably means you are withdrawing too much from your current corpus to meet the shortfall in expenses after accounting for pension or rental income.

Suppose the annuity rate of EPS pension is higher than the 30Y or 40Y RBI bond coupon rate. In that case, you can consider paying the shortfall in EPS contributions to get higher EPS pension but without completely emptying your liquid corpus (excluding an emergency fund).

If the initial WR is < 3.5%, you probably have ample liquid retirement assets to handle inflation and emergencies. Therfore, you do not need the higher EPS pension and can opt out.

If the initial WR is between 3.5% to 4%, it is a cat on the wall situation. Closer examination and projection of future cashflow with reasonable assumptions and expectations are necessary to decide whether one should opt for higher EPS pension. It maybe possible to manage without the EPS pension, but there is chance of running out of money in your lifetime. You can DIY this cashflow projection or consult a SEBI registered fee-only advisor from our curated list.

Those with ample funds can use the EPS pension as a secondary pension source if it has a higher annuity rate. You can simulate this with our robo advisory tool.

As I am sure you have realised by now, it is a rather tough choice, and each case is different. So general calculations or comparison will not help. Now that the last date has been extended to May 3rd, there is plenty of time to consider individual circumstances.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter with the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)