The Employees’ Provident Fund Organisation (EPFO) has come out with clarifications for many doubts regarding computation of the shortfall in contribution and accrued interest for those opting for the higher pension scheme. The provident fund body has notified the replacement mechanism for 1.16% additional contribution that the members were required to pay on a wage above Rs 15,000 when opting for the higher EPS pension; it will now be added to the employer’s contribution towards EPS, taking it to 9.49%. It will help employees analyse their additional contribution and the return they can expect on it. Now, the next question is whether you should go in for the higher pension scheme or not.
Impact of new rule regarding 1.16% extra contribution Employees opting for the higher pension will not have to pay the additional 1.16% contribution on salary above Rs 15,000 from their salary; it will come from the employer’s overall contribution of 12% towards EPS and EPF. This is because the employer’s contribution towards EPS has been kept at 8.33% for salary up to the current wage ceiling of Rs 15,000 but the contribution towards EPS by the employer has been raised from 8.33% to 9.49% on salary above the wage ceiling of Rs 15,000. This rule will be applicable not only on future contributions but also on the contributions required to make up for the shortfall (since September 1, 2014) for employees applying for the higher pension now.
A member will be required to pay not only the missing contribution at a higher rate of 8.33% and 9.49% on salary up to Rs 15,000 and above Rs 15,000, respectively, but will also have to pay the accrued interest amount till date at the applicable historical EPF interest rate.
For service period before September 1, 2014, the revised maximum employer’s contribution will be calculated at 8.33% of the actual wage to find out the missing contribution of past and accrued interest.
This missing dues for EPS contribution with interest can be either transferred from the EPF account if it has sufficient balance or in case of a shortfall the balance amount will have to be deposited from the member’s bank account.
Therefore, the sole important factor that will tell you whether you should go for the higher pension or not is the return on your additional amount that you need to deposit for getting the higher pension.
People who retired after August 2014 or close to retirement will gain most
The pension amount under EPS 95 depends primarily on two factors: length of service and average salary of the past 5 years. Had the contribution rate been similar throughout the service period, it would not have made much difference when you joined and when you will retire. However, as the contribution rate went up since September 1, 2014, members will have to contribute at a higher rate for the same pension… Read More
Source By: economictimes
