With the deadline to opt for a higher EPS pension shifted to June 26, 2023, subscribers have some time to evaluate the decision. A reader with 15 years of service in a PSU wants to know if an EPS pension will benefit him. He estimates that he has to shift about 13.5 lakhs from EPF to EPS account to get this pension plus higher contributions for the remainder of his service. The first step is to check, Are you eligible for a higher EPS pension?
- Rs. 13.5 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 19 years.
- Note: A subscriber should contribute to EPF and EPS at 12% of basic pay + DA to be eligible for EPS pension. The Rs. 13.5 lakhs mentioned above is assumed to be the shortfall to reach the 12% of basic + DA limit on past contributions.
- That is not all. Future contributions to EPF will also decrease, further decreasing the total corpus.
- Not opting for an EPS pension has multiple benefits for those with enough service left. They have complete control of their retirement corpus and plan it as they like. Most importantly, they also 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.
- 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.
- Unlike an EPS pension, an 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.
- 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, especially for those with considerable service left.
- A salary cut in the future would lead to a lower EPS pension. This is unlikely for those in a PSU but possible for those in the corporate sector – layoffs, job hopping etc.
Therefore, we believe those whose retirement is at least ten or more years away should not opt for a higher EPS pension. They should take professional help and sort out their retirement planning.
This does not imply that others should opt for an EPS pension. See:
- I am about to retire. Can I opt for a higher EPS pension?
- Higher EPS Pension: Should those who retired recently or are about to retire opt for it?
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Dr 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 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
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